[Federal Register Volume 70, Number 45 (Wednesday, March 9, 2005)]
[Rules and Regulations]
[Pages 11743-11761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4093]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 30 and 52

[FAC 2005-01; FAR Case 1999-025; Item VI]
RIN 9000-AI70


Federal Acquisition Regulation; Cost Accounting Standards 
Administration

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) by revising language 
pertaining to the Cost Accounting Standards Administration, and the 
related FAR contract clause, Administration of Cost Accounting 
Standards. In addition, a new contract clause is added, Proposal 
Disclosure--Cost Accounting Practice Changes. The rule describes the 
process for determining and resolving the cost-impact on contracts and 
subcontracts when a contractor makes a compliant change to a cost 
accounting practice or follows a noncompliant practice. To assist in 
understanding the changes between the current FAR rule and this final 
FAR rule, a matrix that summarizes the major changes is provided in 
Section C, Supplementary Information, below.

DATES: Effective Date: April 8, 2005.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Mr. Richard C. Loeb, Acting Director, 
Office of Acquisition Policy, at (202) 208-3810. Please cite FAC 2005-
01, FAR case 1999-025.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 65 FR 20854, April 18, 2000, with a request for comments by 
June 19, 2000. Nine respondents submitted public comments. Additional 
comments were also provided by the public at a series of public 
meetings held on August 2, September 26, and October 17, 2000. As a 
result of the comments received, the Councils made significant changes 
to the proposed FAR rule and published a second proposed FAR rule in 
the Federal Register at 68 FR 40104, July 3, 2003, with a request for 
comments by September 2, 2003. An additional public meeting was held on 
August 5, 2003.
    Nine respondents submitted comments in response to the second 
proposed FAR rule. A discussion of these public comments are provided 
below. The Councils considered all comments and concluded that the 
proposed rule should be converted to a final rule, with changes to the 
proposed rule. Differences between the second proposed rule and final 
rule are discussed in Section B, Comments 8, 9, 12, 21, 26, 27, 28, 29, 
35 and Other Changes, below.

B. Public Comments

Public Meeting

    1. Comment: Four respondents recommended holding a public working 
group session to address the concerns and recommendations contained in 
the public comments submitted in response to the proposed rule.

[[Page 11744]]

    Councils' response: Nonconcur. With the removal of the calculation 
of increased cost in the aggregate from the final rule (see comment 
26), the Councils do not believe there are any issues that warrant 
holding another public meeting.

Complex and Prescriptive

    2. Comment: Five respondents asserted that the proposed rule is 
overly prescriptive. One respondent stated that the proposed rule is 
unnecessarily complicated and does not address the major reasons that 
the current process does not work. Two respondents asserted the 
proposed rule is so detailed and prescriptive that CFAOs will be unable 
to exercise good business judgment and consider the unique aspects of 
each contractor's business environment in settling issues. Another 
respondent stated that the highly prescriptive nature of this 
regulation will impede the expeditious and fair resolution of CAS 
issues. The respondent stated that CFAOs will interpret the proposed 
rule as significantly decreasing the flexibility regularly exercised 
under the current regulation. Yet another respondent asserted that the 
detailed requirements for a GDM are too prescriptive. This respondent 
stated that, in many cases, very high-level GDM's are all that is 
needed to determine if an impact is going to be immaterial, while in 
other cases, a GDM with more detail may be necessary. They stated that 
the GDM's require more flexibility than is provided for in the proposed 
amendment.
    Councils' response: Nonconcur. The Councils do not believe that the 
general content of the rule is overly prescriptive. The Councils 
believe that the CFAO and the contractor have significant flexibility 
in the proposed process, including the ability to determine materiality 
at any time during the process, the ability to submit a GDM in whatever 
format that is acceptable to the CFAO, and the ability to negotiate the 
cost-impact by adjusting a single contract, multiple contracts, or some 
other suitable method. However, the Councils concur with some of the 
specific recommendations made in the public comments regarding 
revisions to the proposed language. To the extent the respondents have 
provided specific comments regarding the prescriptive nature of the 
rule, the Councils have addressed those comments and made recommended 
revisions as deemed appropriate.

Define ``Cost Accumulation''

    3. Comment: One respondent recommended defining the term ``cost 
accumulation'' in FAR Part 31.001, Definitions, and clarifying the 
expression ``noncompliances that involve accumulating costs.''
    Councils' response: Nonconcur. The Councils do not agree that there 
is confusion as to the intent of the term. The Councils believe the 
term ``cost accumulation'' is self-evident and clearly understood. In 
addition, since the CAS Board defines ``accumulating costs'' in 48 CFR 
9904.401-30(a)(1), there is no need to add clarifying language 
regarding the expression ``noncompliances that involve accumulating 
costs.''

Adequacy Determination--Cost-Impact System

    4. Comment: One respondent recommended that the proposed rule be 
revised to ``require the CFAO to make a determination, in conjunction 
with DCAA, regarding a contractor's cost-impact system and their 
ability to submit cost-impact proposals. If a contractor has the 
ability to identify increased or decreased cost accumulations for each 
affected CAS-covered contract and subcontract and can properly 
summarize the increased or decreased cost by contract type and 
Government agency, the CFAO should be required to utilize that 
contractors system.''
    Councils' response: Nonconcur. The Councils are unaware of any 
criteria that have been established as the basis for a CFAO's 
determination of adequacy of a contractor's cost-impact system, unlike 
other systems upon which the Government makes determinations of 
adequacy, such as accounting or billing systems. The Councils also 
believe that such criteria are unnecessary. The effort necessary to 
establish and continuously review cost-impact systems would not be cost 
beneficial to the Government or the contractor. The proposed rule 
provides the contractor with the flexibility to submit a GDM and/or DCI 
proposal in any format that is acceptable to the CFAO. To the extent a 
contractor has a process that produces GDM and/or DCI proposals that 
are acceptable to the CFAO, the contractor will continue to be able to 
use that process under the proposed rule.

CFAO Acting for Non-DoD Agencies

    5. Comment: One respondent stated that the CFAO responsibilities 
set forth in the proposed rule will not work at contractors who have 
CAS-covered contracts and subcontracts with many Government agencies. 
The respondent further stated that agencies outside of DoD have refused 
to accept final incurred expense rates that have been audited by DCAA 
and approved by its ACO and, therefore, it is inconceivable that 
agencies such as DOE or USAID will allow a CFAO to execute a bilateral 
modification to one of its contracts.
    Councils' response: Nonconcur. The Councils have not changed the 
requirements under FAR 30.601, Responsibilities. CAS administration for 
all contracts and subcontracts in a business unit must be performed by 
a single agency. The proposed rule merely uses the term ``Cognizant 
Federal Agency Official (CFAO)'' instead of ``cognizant ACO.'' This 
does not change the responsibilities of the cognizant Federal agency.
    Under FAR 42.202(d), delegation of functions pertaining to cost 
accounting standards cannot be rescinded by any contracting agency. 
Furthermore, FAR 42.703 sets forth that a single agency shall be 
responsible for establishing final indirect cost rates for each 
business unit. These rates shall be binding on all agencies and their 
contracting offices, unless otherwise specifically prohibited by 
statute. An agency shall not perform an audit of indirect cost rates 
when the contracting officer determines that the objectives of the 
audit can reasonably be met by accepting the results of an audit that 
was conducted by any other department or agency of the Federal 
Government.

Materiality Determination--Guidelines

    6. Comment: One respondent recommended that the FAR Council provide 
guidelines for what constitutes adequate documentation in making a 
determination of materiality.
    Councils' response: Nonconcur. The Councils believe that any 
attempt to add guidelines for what constitutes adequate documentation 
would be overly prescriptive, could result in submittal of unnecessary 
documentation, would reduce the flexibility needed to resolve cost-
impacts in a timely manner, and could potentially lead to disputes. The 
Councils' position is consistent with the requirements at FAR 1.704, 
Determination and Findings (D&F). As noted at 30.601, Responsibilities, 
the CFAO is required to make all CAS-related required D&Fs for all CAS-
covered contracts and subcontracts. FAR 1.704 requires that each D&F 
include necessary supporting documentation to clearly and convincingly 
justify the specific determination made. However, since each case must 
be evaluated based on its particular facts and circumstances, FAR 1.704 
does not provide guidelines for what constitutes necessary supporting 
documentation. Similarly, since each cost-impact must be evaluated 
based on

[[Page 11745]]

the particular facts and circumstances, the Councils do not believe it 
is necessary to provide guidelines for what constitutes adequate 
documentation.

Immateriality Determination--Prior to GDM

    7. Comment: One respondent expressed concern with the wording of 
the proposed rule which allows for a determination of materiality 
before submittal of the GDM. The respondent asked how the CFAO can make 
such a determination and what data would have to be provided to the 
CFAO for this determination.
    Councils' response: The Councils believe there will be instances in 
which a determination of materiality can be made (based on the criteria 
at 48 CFR 9903.305) without submittal of a GDM. The data required to 
make such a determination would be identified by the CFAO on a case-by-
case basis, depending on the particular facts and circumstances 
involved. The Councils note that language at 30.602(b)(1) provides the 
CFAO with such flexibility, something that other respondents have 
emphasized is needed in the cost-impact process. The Councils also note 
that this language was endorsed by another respondent who stated that 
they ``* * * support the Council's efforts to clarify the process for 
determining and resolving cost-impacts and believes there are favorable 
aspects of the proposed amendment. For example, the proposed cost-
impact process begins without having to prepare a general dollar 
magnitude (GDM) proposal. In addition, the Cognizant Federal Agency 
Official (CFAO) has the ability to make materiality determinations at 
any time during the process.''

Immateriality Determination--Documentation

    8. Comment: One respondent recommended that whenever the CFAO 
determines the cost-impact is immaterial, the CFAO should be required 
to document the criteria used in making that determination.
    Councils' response: Concur. The Councils believe a requirement for 
the CFAO to document the immateriality determination is appropriate and 
has included the requirement at FAR 30.602(c)(2).

Clarify ``Assertion''

    9. Comment: One respondent recommended modifying or removing the 
term ``assertion'' in the statement at contract clause FAR 52.230-6(b) 
that reads ``a description of any cost accounting practice change to 
the Disclosure Statement and any assertion that the cost-impact of the 
change is immaterial.'' In addition, the respondent recommended that 
any statement by the contractor regarding whether the cost-impact of 
the change is immaterial should be in writing.
    Councils' response: Concur. To avoid potential confusion, the 
Councils agree that paragraph (b) of the contract clause at FAR 52.230-
6 be revised to require submission of a written statement that the 
cost-impact is immaterial. In addition, the term ``written statement'' 
replaces the term ``assertion'' at FAR 30.603-1(c)(2)(ii), 30.603-
2(c)(1)(ii), and 30.605(b)(2)(ii)(B).

Time Restrictions for Contractor

    10. Comment: One respondent recommended that the Council reinstate 
existing specific time limits for the contractor to provide information 
regarding accounting changes and noncompliances in all paragraphs where 
the phrase ``by a specified date'' is used.
    Councils' response: Nonconcur. The respondent's references to the 
CFAO affixing ``a specified time limit'' for contractors to submit a 
GDM (FAR 30.604(b)(1)(i)), revised GDM (FAR 30.604(f)(1)), or DCI (FAR 
30.604(f)(2)) does not provide flexibility to the CFAO to specify a 
date that is commensurate with the complexity of the issue(s). 
Ultimately, the total time allotted a contractor is addressed by FAR 
30.604(i), Remedies, which may be disputed by the contractor.

Time Restrictions for Government

    11. Comment: Two respondents stated that the proposed rule does not 
address one of the major problems associated with the resolution of 
cost-impact proposals related to noncompliances and accounting changes. 
One respondent stated that the problem is the fact that the Government 
has no time restrictions for performing its responsibilities. The 
respondent recommended that the proposed rule require all actions 
related to these issues be performed within specific time frames. In 
addition, the respondent recommended that reasonable response times be 
established for Government personnel.
    Councils' response: Nonconcur. The Councils believe a specific time 
requirement for CFAO action could increase disputes concerning the 
adequacy of contractor submissions since the time periods cannot 
reasonably start until an adequate submission is received. The Councils 
are not aware of, and the respondents did not provide, a remedy for 
Government failure to comply with a recommended time requirement.

DCI in Lieu of GDM

    12. Comment: Two respondents stated that the submittal of a GDM 
requires extra analysis and is less precise than a detailed cost 
proposal. The respondents asserted that the databases and cost-impact 
calculation systems used by CAS-covered contractors can provide a DCI 
that is much more precise than the calculations required by a GDM.
    Councils' response: Partially concur. The GDM proposal does not 
require extra analysis. Proposed FAR 30.604(d) and 30.605(d) allow the 
CFAO and contractor flexibility in the submittal of a GDM. For some 
contractors, the databases and cost-impact calculation systems they use 
allow for the computation of DCIs with relative ease. In such cases, it 
is anticipated that a contractor would submit the cost-impact 
calculation generated by its system as the GDM. However, the final rule 
has been revised at FAR 30.604(d)(3) and 30.605(d)(3) to clarify that 
the contractor may submit a DCI in lieu of a GDM proposal. The Councils 
believe that allowing, but not requiring, the submittal of a GDM gives 
contractors flexibility to submit proposals as complex and precise as 
they choose, up to and including the submittal of a full DCI.

Cost-Impact Approximations

    13. Comment: Two respondents stated that the use of approximations 
of prices and cost accumulations are not necessary. Both respondents 
stated that it is easy and more cost effective to calculate DCI 
proposals. One respondent also stated that it does not see why a 
contractor should be required to calculate the increased cost in the 
aggregate one way for a GDM proposal and another way for the cost-
impact calculation.
    Councils' response: Nonconcur. For some contractors, the databases 
and cost-impact calculation systems they use allow for the computation 
of detailed cost-impacts with relative ease. For other contractors, 
this is not necessarily the case. The Councils believe that allowing 
the submittal of a GDM that provides a reasonable approximation of the 
total increase in cost accumulations, gives contractors flexibility to 
submit proposals as complex and precise as they choose, up to and 
including the submittal of a full DCI. However, since some contractors 
may choose to go directly to the DCI, the final rule has been revised 
to specifically state that the contractor may

[[Page 11746]]

submit a DCI in lieu of a GDM proposal (see comment 12).

Representative Sample and Projections

    14. Comment: Two respondents stated that the use of a 
representative sample and the projection of that sample to determine 
the total increase or decrease in cost accumulations are problematic. 
Both respondents stated that they have had difficulties over the years 
in reaching agreement with the Government on what constitutes a 
representative sample.
    Councils' response: Nonconcur. The Councils believe that for some 
contractors, the projection of representative samples is a feasible 
method for computing increases and decreases in cost accumulations for 
the purposes of the submittal of a GDM (see FAR 30.604(e)(2)(i) and 
30.605(d)(2)(i)). For contractors that find it problematic to come to 
an agreement with the Government on what constitutes a representative 
sample, there are alternative methods for computing increases and 
decreases in cost accumulations in preparing for the submittal of a 
GDM. In addition, the final rule has been revised to permit contractors 
to submit a DCI in lieu of a GDM proposal (see comment 12).

Firm-Fixed-Price Contracts

    15. Comment: Six respondents commented that firm-fixed-price (FFP) 
contracts should not be included in cost-impacts for changes in cost 
accounting practices. One respondent asserted that ``increased costs to 
the Government only result from a change in contractor's cost 
accounting practices when the actual costs paid by the Government are 
more than they would have been had the contractor's practices not 
changed.'' The respondent further asserted that FFP contracts are not 
included in the cost-impact because the amount of costs a contractor 
assigns to FFP contracts due to a change in cost accounting practices 
has no effect on the amount ultimately paid by the Government.
    Councils' response: Nonconcur. FFP contracts are properly included 
in cost-impacts for changes in cost accounting practice in the subject 
rule. 48 CFR 9903.306(a) does not differentiate among contract types in 
its definition of increased costs to the Government. Further, 48 CFR 
9903.306(b) measures increased costs for FFP contracts by ``the 
difference between the contract price agreed to and the contract price 
that would have been agreed to had the contractor proposed in 
accordance with the cost accounting practices used during contract 
performance.'' The final rule at FAR 30.604 is consistent with the 
requirements at 48 CFR 9903.306(a) and (b).

Required Information

    16. Comment: One respondent questioned whether the benefits to be 
derived from the requirement at FAR 30.604(e)(3) to provide certain 
information when a unilateral change is involved are worth the costs to 
comply. The respondent's concern was based on its belief that FAR 
30.606(c)(3) neither justifies why the information is needed nor 
discusses how the information will be used.
    Councils' response: Nonconcur. The information required by FAR 
30.604(e)(3) (the increased or decreased costs by agency, and the 
increased or decreased costs for fixed-price contracts and subcontracts 
and flexibly-priced contracts and subcontracts) is required to 
determine how any adjustments will be handled. Specifically, the 
increase or decrease by agency is needed to assure that the contracts 
to be adjusted and the amounts of those adjustments are fairly 
allocated among the executive agencies. The breakout by firm-fixed 
price and flexibly-priced contracts is needed since the terms 
``increased costs'' and ``decreased costs'' mean different things when 
applied to fixed-price versus flexibly-priced contracts.

GDM Versus DCI

    17. Comment: One respondent commented that over the last decade, 
``technology has advanced to the stage where a very accurate cost-
impact proposal covering all affected pricing actions, (by contract, 
task, agency, contract type, etc.) is now practical. The speed and 
power of personal computers, combined with advances in database 
technology, now make it much easier to calculate precise cost-impacts 
in a very short time.'' Thus, ``the debate over GDM versus DCI cost-
impacts may well become moot.''
    Councils' response: Nonconcur. The Councils believe that retention 
of the GDM as an option available to the CFAO promotes the streamlining 
of the cost-impact process in many cases, such as those where the 
contractor does not have a sophisticated cost-impact system as 
envisioned by the respondent. The final rule at FAR 30.604(f)(1) 
provides that the CFAO may use the GDM to resolve cost-impacts without 
requiring the preparation of a DCI. The Councils believe that this 
option will result in a significant savings of resources for both the 
contractor and the Government.

Contradictory Rules

    18. Comment: One respondent stated that proposed FAR 30.604(h) 
seems to apply only to Detailed Cost-impact proposals (DCIs), but the 
proposed language in the FAR clause at FAR 52.230-6(f) applies the 
principle to both General Dollar Magnitude Proposals (GDMs) and DCIs. 
The respondent's conclusion is that these two paragraphs of the 
proposed rule are contradictory.
    Councils' response: Nonconcur. FAR 30.604(e)(1), General dollar 
magnitude proposal content, and FAR 30.604(g)(1), Detailed cost-impact 
proposal, both require computation of the cost-impact in accordance 
with 30.604(h), Calculating cost-impacts. Thus, the proposed rule is 
not contradictory.

Cost-Impact Computations

    19. Comment: One respondent stated that the required cost-impact 
computations set forth in FAR 30.604(h) and 30.605(h) cause additional 
administrative burden. These requirements preclude the respondent from 
utilizing its Government approved cost-impact system.
    Councils' response: Nonconcur. The proposed rule does not preclude 
the respondent from using its cost-impact system, provided that the 
system computes the cost-impact in accordance with FAR 30.604(h) and 
30.605(h). It is noted that the Government does not ``approve'' cost-
impact systems.

Closed Contracts and Closed Years

    20. Comment: Four respondents commented that the cost-impact 
calculation should not include closed contracts or years with final 
negotiated overhead rates.
    Councils' response: Nonconcur. The Councils believe that it is 
appropriate to include closed contracts and closed fiscal years in the 
cost-impact calculation. Under the CAS clause at 48 CFR 9903.201-
4(a)(5), the contractor in connection with this contract shall ``agree 
to an adjustment of the contract price or cost allowance, as 
appropriate, if the contractor or a subcontractor fails to comply with 
an applicable cost accounting standard, or to follow any cost 
accounting practice consistently and such failure results in any 
increased costs paid by the United States. Such adjustment shall 
provide for recovery of the increased costs to the United States, 
together with interest thereon computed at the annual rate established 
under Section 6621(a)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 6621(a)(2)) for such period, from the time the payment by the 
United States was made to the time the adjustment is effected.''

[[Page 11747]]

    The provision at 48 CFR 9903.201-4(a)(5) does not provide for the 
exclusion of closed contracts or closed fiscal years from the cost-
impact calculation. Since the CAS Board has not excluded such 
contracts, the Councils believe they must be included in the cost-
impact calculation. The Councils further note that this position is 
consistent with the treatment of closed contracts and final negotiated 
overhead rates for price adjustments under the Truth in Negotiations 
Act. Defective pricing claims are often brought after the contract is 
closed and closure is no barrier to Government relief. The Councils 
also believe this is consistent with the position historically taken by 
the Government on CAS.

Cost-Impacts in Prior Years

    21. Comment: One respondent stated that the proposed language at 
FAR 30.604(h)(1) infers that all cost-impacts occur in prior periods. 
The cost-impact calculation for all affected contracts generally 
involves the ``estimated cost to complete'' that will be incurred in 
future periods, after the change is implemented. To clarify that the 
cost-impact can involve existing contracts that will be performed in 
the future, insert the words ``or will be'' between ``were'' and 
``incurred.''
    Councils' response: Concur. The Councils agree that the 
respondent's recommendation will clarify the intent of the language at 
FAR 30.604(h)(1). However, the Councils believe the language at FAR 
30.604(h)(1), as well as 30.605(h)(1), would be better clarified by 
inserting the word ``are'' in place of the word ``were.''

Change in Cost Accumulation

    22. Comment: Two respondents expressed concern that the proposed 
rule requires that a GDM and/or DCI is required for a change in cost 
accumulation without regard to whether costs were billed. The 
respondents stated that the Government cannot be harmed until an actual 
billing has been submitted and paid. One respondent questioned how 
there can be any increased or decreased costs paid by the Government 
related to a unilateral change if contractors are complying with the 
current regulations.
    Councils' response: Nonconcur. The rule assumes that the 
contractor's system used to accumulate costs is also used to bill those 
costs. While the Government cannot be harmed until the costs are 
actually billed, the CFAO is required to take action to preclude the 
Government from paying increased costs. Thus, if action is not taken to 
correct the noncompliance in cost accumulation, the increased costs 
could ultimately be billed to the Government. Note that one of the 
actions that can be taken is the correction of the accumulated costs to 
correct the noncompliance.

Estimated Cost To Complete--Same Level of Work

    23. Comment: One respondent recommended that the language regarding 
the two estimates to complete at FAR 30.604(h)(3) be revised to state 
that they should be based on contractor performance at the same level 
of contract work. The respondent recommended adding the words ``in cost 
accumulation'' and the phrase ``required to perform the same level of 
contract work.''
    Councils' response: Nonconcur. The language at issue concerns the 
items to be included in a GDM and DCI proposal. Based on past 
experience, the Councils believe adding the recommended language is 
more likely to cause confusion and disputes rather than add clarity. In 
the CAS Board Announced Notice of Proposed Rulemaking on changes in 
cost accounting practice and in the first proposed rule on FAR Part 30, 
the language required that the estimates be based on a ``consistent 
baseline.'' In both instances, public comments were submitted that 
clearly showed confusion as to the intent of the proposed language and 
requested clarification as to what was meant by a ``consistent 
baseline.'' The Councils believe the revised final language at FAR 
30.604(h)(3) is sufficient for the parties to understand that the 
purpose of using an estimate to complete is to determine the difference 
in cost accumulations solely as a result of the changed practice, i.e., 
the two estimates to complete cannot use different work scopes, 
different anticipated wage increases, different anticipated material 
price increases, or any other differences that do not result from the 
use of a different accounting practice.

Estimated Cost To Complete

    24. Comment: Four respondents stated that the proposed rule 
requires the contractors to use current estimates-to-complete to 
calculate the cost-impact of changes to cost accounting practices. Two 
of the respondents asserted that such estimates may be so impacted by 
other events occurring subsequent to the award of a contract that they 
do not provide a reasonable basis for measuring increased costs to the 
Government.
    Councils' response: Nonconcur. Although not specifically stated, it 
appears that the respondents are addressing the use of current 
estimates to complete for determining the cost-impact on fixed-price 
contracts (see FAR 30.604(h)(3)). For flexibly-priced contracts, since 
the current estimates to complete represent the actual amount that will 
be reimbursed, there should be no issue regarding the use of such 
estimates.
    The Councils do not believe it is practical to use the original 
cost estimates for determining the cost-impact on fixed-price 
contracts. The Councils believe using current estimates to complete is 
the only feasible method for computing the cost-impact of changes in 
cost accounting practice. As noted in CAS Working Group Paper 76-9, 
there are several serious impediments to using original cost estimates 
for adjusting fixed-price contracts. While the parties to a fixed-price 
contract have agreed to a total price, there is often no agreement as 
to how much of the price represents cost and how much of the price 
represents profit, and seldom a meeting of the minds on the amount of 
any individual element of cost. Further, many fixed-price contracts 
will have undergone numerous price changes due to engineering 
modifications and other changes. In such cases, tracking an individual 
cost element may prove virtually impossible. There is also the danger 
that the confusion resulting from the attempt to reconstruct the 
original data will provide an opportunity to re-price loss portions of 
contract performance that have elapsed prior to the point of the 
change.

Define ``In the Aggregate''

    25. Comment: One respondent commented that the CAS Board should 
define ``in the aggregate.''
    Councils' response: The Councils recommend the respondent address 
its suggestion to the CAS Board, which can then decide if any action is 
necessary.

Increased Costs in the Aggregate

    26. Comment: Eight respondents stated that the proposed rule on 
increased costs in the aggregate was a violation of CAS and the 
statutory provision.
    Councils' response: The comment is no longer applicable--the final 
rule does not include the calculation of increased cost in the 
aggregate. The calculations at the following proposed coverage were 
removed from the final rule: 30.604(h)(3), and (4)(iv)(A) through (C); 
and 30.605(h)(5), (6), (8)(i) and (ii), and (9).
    In addition, revisions were made at the following proposed coverage 
as a result of the removal of the calculations: 30.604(h)(4)(i), (ii), 
and (iv)--now 30.604(h)(3)(i), (ii), and (iv); and

[[Page 11748]]

30.605(h)(3), (4), and (8)--now 30.605(h)(3), (4), and (6).

Offsets Between Contract Types

    27. Comment: Two respondents stated that the proposed rule 
incorrectly disallows offsets between contract types. In addition, one 
respondent asserted that the Government could be provided with a 
``windfall profit'' if offsets are not allowed between contract types 
in the case of any noncompliance or unilateral change that causes costs 
to shift between fixed-price contracts and subcontracts and flexibly-
priced contracts and subcontracts.
    Councils' response: The comment is no longer applicable--the final 
rule does not include the calculation of increased cost in the 
aggregate. The calculations were removed from the final rule (see 
comment 26).

Interest Computation--Calculation

    28. Comment: One respondent stated that it does not understand how 
interest can be calculated by multiplying the difference in indirect 
costs by an applicable base, and that the methodology used to compute 
interest at FAR 30.605(d)(2)(ii)(B) makes no sense.
    Councils' response: Concur. The Councils recognize that potential 
confusion could result from the language, and that the language may be 
overly prescriptive. The Councils have therefore revised the final rule 
to eliminate the discussion of interest by deleting proposed FAR 
30.605(d)(2)(ii)(B) to reduce the prescriptive nature of the language.

Interest Computation--Over and Underpayments

    29. Comment: One respondent stated that the proposed requirements 
for calculating quarterly interest payments associated with 
overpayments or underpayments for noncompliances are overly 
prescriptive.
    Councils' response: Concur. The Councils believe it is imperative 
for the contractor to provide information on when any increased costs 
were paid, so that the CFAO can compute interest in accordance with the 
statutory requirements. However, the Councils recognize that more 
flexibility can be inserted in the process. Therefore, the Councils 
revised the requirements for a GDM and DCI proposal at proposed FAR 
30.605(d)(3)(iii) (now 30.605(d)(4)(iii)) by adding ``for fixed-price 
and flexibly-priced contracts'' after the word ``underpayments'' in the 
first sentence, and deleting the second sentence that required total 
over and underpayments be broken down by quarter.

Quarterly Data

    30. Comment: One respondent asserted that the ``proposed rule 
mandates a schedule of increased or decreased costs paid by quarter (or 
an analysis to demonstrate why such a schedule is necessary) by 
Executive agency as a required part of a general dollar magnitude cost-
impact for an alleged noncompliance.'' The respondent stated that this 
administrative burden should be evaluated.
    Councils' response: Nonconcur. The proposed rule at FAR 
30.605(d)(3) does not require a schedule of increased or decreased 
costs paid by quarter by Executive agency as part of a general dollar 
magnitude cost-impact. The proposed rule requires that the GDM include 
the total overpayments and underpayments broken down by quarter, unless 
each of the quarterly amounts billed during the period of noncompliance 
were approximately equal. It does not require that such amounts also be 
broken down by Executive agency. It is noted that the Councils removed 
the requirement at proposed FAR 30.605(d)(3)(iii) that the overpayments 
and underpayments be broken down by quarter in the GDM proposal (see 
comment 29), as well as the requirement at proposed FAR 30.605(g)(2)(i) 
and (ii) concerning the computation of interest on the quarterly 
amounts billed.

Task Order Contracts

    31. Comment: One respondent stated that one of the many situations 
that greatly affect the cost accumulation calculation that is not 
addressed in the proposal is the trend toward task order contracts that 
may have both fixed fee and incentive fee tasks, as well as CAS covered 
and non-CAS covered tasks.
    Councils' response: Nonconcur. The Councils believe that this 
situation is adequately covered by the language at FAR 30.605(h)(5), 
and the definition of ``Affected CAS-covered contracts'' at FAR 30.001.
    FAR 30.605(h)(5) requires that the computation of the cost-impact 
include a calculation of the total increase or decrease in contract and 
subcontract incentives, fees, and profits associated with the increased 
or decreased costs to the Government in accordance with 48 CFR 
9903.306(c). Thus, if the task involves a fixed fee, the contractor 
would need to compute the increase or decrease in that fixed fee as a 
result of the change or noncompliance. Conversely, if the task involved 
an incentive fee, the contractor would need to compute the increase or 
decrease in the incentive fee as a result of the change or 
noncompliance.
    As for the issue of CAS-covered versus non-CAS-covered tasks, a 
contract cannot contain both CAS-covered and non-CAS-covered tasks. In 
order for CAS-coverage to differ between tasks, each task would have to 
be a separate contract. In such cases, the definition of affected CAS-
covered contracts would exclude the non-CAS covered tasks from the 
computation of the cost-impact.

Cost-Impact on Incentives, Fee, and Profit

    32. Comment: One respondent stated that FAR 30.605(h)(5) excludes 
flexibly-priced contract cost ceilings or target costs for determining 
increased costs in the aggregate for noncompliances involving 
estimating costs. The respondent stated that the proposed requirement 
is only applied to fixed price contracts, and asserted that ``the 
proposed coverage ignores the cost-impact on negotiated flexibly priced 
contract cost ceilings or target costs that were understated or 
overstated due to a contractor's proposal that contained estimated 
costs which were based on the use of a noncompliant practice.'' The 
respondent recommended that FAR 30.605(h)(5) be revised to include 
flexibly-priced contracts in the computation of increased costs in the 
aggregate for estimating noncompliances. The respondent also stated 
that under FAR 30.606(c)(4)(ii), as proposed, fixed price contracts 
would only be subject to downward price adjustment if there are ``net'' 
increased cost to the Government and opined that flexibly-priced 
contracts should not be excluded from the adjustment process. The 
respondent believes that the proposed approach to only recover the 
aggregate increased cost to the Government for fixed price contracts 
can result in inequities.
    Councils' response: Nonconcur. The Councils believe that flexibly-
priced contracts are properly included in the computation of increased 
costs in the aggregate. For a noncompliance in estimating costs, the 
Councils do not believe the impact on negotiated flexibly-priced 
contract cost ceilings or target costs should be included in the 
computation of increased costs in the aggregate. Under a flexibly-
priced contract, the Government reimburses the actual costs incurred. 
As a result, a noncompliance in estimating the costs does not affect 
the total costs the Government will ultimately reimburse on flexibly-
priced contracts. However, an estimating noncompliance may have a 
significant impact on the amount of

[[Page 11749]]

incentives, fees or profits for flexibly-priced contracts. Thus, the 
final rule requires inclusion of the impact on incentives, fees, and 
profits in computing the increased costs in the aggregate for 
estimating noncompliances.

Records Retention

    33. Comment: One respondent stated that problems with the current 
process for handling cost-impacts could be addressed by adding a 
requirement for contractors to retain cost proposals that were the 
basis for negotiating the value of the CAS-covered pricing actions.
    Councils' response: Nonconcur. The Councils disagree that adding a 
specific requirement to FAR Part 30 is appropriate. FAR 4.703, Policy-
Contractor Records Retention, already describes the record retention 
requirements for contract negotiations, administration, and audit 
requirements of the contracting agencies. The Councils believe these 
record retention requirements are adequate for purposes of CAS 
administration.

Adjust Each Individual Contract

    34. Comment: One respondent recommended that FAR 30.606(a)(2) 
include an analysis of the total payments that would be made if all 
affected contracts were individually adjusted so that the CFAO can 
determine whether one or more contracts are to be adjusted, or if an 
alternative method can be used to resolve the impact. The respondent 
asked how, without such data, the CFAO can determine that the 
Government will not pay more, in the aggregate, than would be paid if 
the CFAO had adjusted all affected contracts?
    Councils' response: Nonconcur. In an ideal world, the contractor 
would provide a detailed analysis of the total payments for each and 
every affected contract. However, the Councils recognize that this is 
often not feasible and, in fact, would impose a significant 
administrative burden on contractors, extending the cost-impact process 
by years. The Councils do not believe that individual contract data is 
necessary in every circumstance in order for the CFAO to determine 
increased costs in the aggregate. The final rule, therefore, provides 
the CFAO the flexibility to obtain data at a more macro level, if 
appropriate.

Combining Certain Types of Impacts

    35. Comment: Two respondents stated that they believe the proposed 
language at FAR 30.606(a)(3) is counter productive as it contains 
language that will further limit the Government and the contractor from 
resolving some of the more complex cost-impacts. The section precludes 
the Government from combining cost-impacts that include: (a) Changes 
implemented in different fiscal years, (b) changes and noncompliances, 
(c) two or more noncompliances, and (d) different categories of 
changes.
    Councils' response: Partially concur. The Councils believe that 
some language at FAR 30.606(a)(3) is necessary to protect the interests 
of the Government. However, the Councils also recognize that the 
proposed language should be revised to provide some additional 
flexibility to the CFAO in resolving cost-impacts. The Councils, 
therefore, revised the language at FAR 30.606(a)(3) to reflect the 
following:
    (a) Changes implemented in different fiscal years. The Councils 
agree with the respondent that implementing changes in different fiscal 
years should not be the basis for precluding the combination of such 
changes. The Councils have, therefore, deleted proposed 30.606(a)(3)(i) 
from the final rule.
    (b) Required/desirable changes combined with unilateral changes/
noncompliances. The actions taken to resolve a required or desirable 
change (negotiate an equitable adjustment) are different from the 
actions taken to resolve a unilateral change or a noncompliance 
(recover increased costs to the Government). Therefore, the Councils 
believe that combining cost-impacts of required/desirable changes with 
the cost-impacts of unilateral changes/noncompliances should be 
prohibited, as indicated at FAR 30.606(a)(3)(i).
    (c) Combining unilateral changes and/or noncompliances. When the 
individual cost-impact of each unilateral change and each noncompliance 
is increased costs in the aggregate, the Councils agree that the change 
and noncompliance may be combined for administrative ease in resolving 
cost-impacts, as indicated at FAR 30.606(a)(3)(ii). Such combinations 
can only be made by mutual agreement of both parties.
    The Councils further believe that combining the cost-impacts of 
unilateral changes and/or noncompliances must be precluded if any of 
the individual changes or noncompliances involved results in decreased 
costs in the aggregate. When there are two or more unilateral changes/
noncompliances, some with increased costs and others with decreased 
costs, combining the cost-impact of those changes does not comply with 
the statutory requirement that the Government recover the increased 
costs in the aggregate for each unilateral change/noncompliance. There 
is no statutory provision that permits offsetting the cost-impact of 
one unilateral change/noncompliance with the cost-impact of any other 
unilateral change/noncompliance.
    (d) Cost-impacts of a unilateral change affecting two or more 
segments. The Councils recognize that, in some circumstances, a 
unilateral change may affect more than one segment. When such a change 
affects the flow of costs between segments or implements a common cost 
accounting practice for two or more segments, the CFAO may treat this 
as a single change for cost-impact purposes, as indicated at FAR 
30.606(a)(3)(iii).

Mandatory Adjustments and Disallowance of Costs

    36. Comment: Regarding FAR 30.606, one respondent stated that ``The 
proposed mandatory provisions in (c)(3)(i) and (ii) appear incompatible 
with the CASB provision at 48 CFR 9903.201-6(b) and the proposed 
permissive provision at (c)(3)(iii).'' The respondent further stated 
that ``The proposed provision at (c)(3)(iii) provides the CFAO `may' 
adjust contract prices, including cost ceilings or target costs, 
provided contract prices are not increased in the aggregate.'' The 
respondent also stated that ``This appears predicated on the CASB 
regulatory provision at 48 CFR 9903.201-6(b), but the FAR proposal 
makes it subservient to the mandatory provisions at (c)(3)(i) and (ii) 
which do not sanction such adjustments.'' The respondent then stated 
that ``the proposed rule appears to conflict with the CAS rules, as 
amended on June 14, 2000,'' and cited similar inconsistencies with FAR 
30.606(c)(4). The respondent recommended that FAR 30.606(c)(3)(i) and 
(ii), and FAR 30.606(c)(4)(i) and (ii) be deleted and make the proposed 
provisions at (c)(3)(iii) and (c)(4)(iii) mandatory, for consistency 
with CAS rules. The respondent further recommended that the 
parenthetical at FAR 30.605(h)(3) be deleted because it does not 
require the adjustment of contract cost ceilings and target prices. 
Finally, the respondent recommended that, after adjusting the contract 
ceilings and target prices, FAR 30.606(c)(3) and (c)(4) include a 
``mandatory provision requiring the CFAO to disallow accumulated costs 
under flexibly-priced contracts, but only for the portion of estimated 
increased cost accumulations that remains in a cost overrun condition 
after contract cost ceiling adjustments, if any, are made.''
    Councils' response: Nonconcur. In an ideal world, the CFAO would 
adjust all

[[Page 11750]]

contracts so each and every dollar of the cost-impact is perfectly re-
allocated to each and every affected contract. This would include all 
contract ceilings and target prices. However, the Councils recognize 
that this is often not feasible and, in fact, would impose a 
significant administrative burden on contractors, extending the cost-
impact process by years. The CAS rules recognize the need for 
flexibility at 48 CFR 9903.306(f), which states:

    ``Whether cost-impact is recognized by modifying a single 
contract, several but not all contracts, or any other suitable 
technique, is a contract administration matter. The Cost Accounting 
Standards do not in any way restrict the capacity of the parties to 
select the method by which the cost-impact attributable to a change 
in cost accounting practice is recognized.''

    The Councils believe the final rule provides the CFAO the 
flexibility to adjust the contract cost ceilings and target prices when 
the CFAO deems appropriate, as provided for by the CAS rules.

Cost Accumulation Noncompliances

    37. Comment: One respondent commented that the FAR Council should 
rethink its requirement for cost accumulation noncompliances. The 
respondent asserted that the only harm to the Government in such 
noncompliances is the application of interest to the difference between 
a compliant and noncompliant billing.
    Councils' response: Nonconcur. The Councils do not agree with the 
respondent's assessment of the harm to the Government in the case of a 
noncompliance in accumulating costs. The respondent assumes that the 
contractor agrees to correct the noncompliance and immediately reflects 
the correction in subsequent billings to the Government. This may not 
always be the case since the Government and contractor may not agree on 
the nature and extent of the noncompliance and the contractor may 
decline to make appropriate adjustments to billed costs. In addition, 
the noncompliance may affect closed contracts for which there can be no 
corrections to billings. The calculation of the cost-impact of the 
accumulation noncompliance is necessary to ensure that the Government 
recovers the full extent of any increased costs as well as any 
statutorily required interest (see FAR 30.606(c)(5)).

Adjustment of Final Indirect Rates

    38. Comment: Two respondents stated that the adjustment of final 
indirect rates by the CFAO is inappropriate. They stated that since 
``final incurred cost rates are applicable to all Government contracts, 
not just CAS-covered Government contracts. Therefore, CAS issues are 
being forced on non CAS-covered contracts through the application of 
adjusted final incurred cost rates.'' One respondent also argued that 
the proposed rule does not reflect the position taken by the CAS Board 
in its second supplemental notice of proposed rulemaking, 64 FR 45700, 
August 20, 1999, in response to a respondent suggesting the use of the 
final indirect expense rate settlement process rather than contract 
price adjustments as a method to resolve a cost-impact. In response to 
that comment, the CAS Board stated ``Adjustments of indirect expense 
rates to settle a cost-impact action can result in the adjustment of 
the wrong contracts for the impact of the change in accounting 
practice. This method also results in the establishment of final 
indirect expense rates that are not consistent with a contractor's 
established and disclosed accounting practices for allocating indirect 
costs to final cost objectives.''
    Councils' response: Nonconcur. CAS issues are not being forced on 
non CAS-covered contracts because the contractor must agree to any 
adjustment of final indirect rates. FAR 30.606(d)(1) states that the 
CFAO may use an alternate method to resolve the cost-impact provided 
the contracting parties agree on the use of that alternate method. 
Thus, the impact of the change or noncompliance will not affect non 
CAS-covered contracts unless the contractor agrees. The CAS Board 
recognizes the use of an alternate method such as adjusting indirect 
rates at 48 CFR 9903.306(f), which states ``Whether cost-impact is 
recognized by modifying a single contract, several but not all 
contracts, or any other suitable technique, is a contract 
administration matter. The Cost Accounting Standards rules do not in 
any way restrict the method by which the cost-impact attributable to a 
change in cost accounting practice is recognized.''

Other Changes

    The Councils revised the clause language at FAR 52.230-6, 
Administration of Cost Accounting Standards, to be in accord with the 
changes made to the final rule as described in the Councils' responses 
to the public comments, above. In addition, the Councils made several 
editorial-type changes to the proposed language to enhance clarity and 
structure of the final rule.
    The Councils also made a clarifying change at FAR 30.001 to the 
definition of ``Fixed-price contracts and subcontracts'' to exclude 
fixed-price contracts with economic price adjustments (EPA) based on 
actual costs of labor or material (described at 16.203-1(a)(2)), and 
included these EPA contracts in the definition of ``Flexibly-priced 
contracts and subcontracts.''

C. Summary of Changes

------------------------------------------------------------------------
     Issue             Current FAR rule             Final FAR rule
------------------------------------------------------------------------
                               Definitions
------------------------------------------------------------------------
1..............  No definitions for           Added new definitions for
                  ``Affected CAS-covered       ``Affected CAS-covered
                  contract,'' ``Fixed-price    contract,'' ``Fixed-price
                  contracts,'' and             contracts,'' and
                  ``Flexibly-priced            ``Flexibly-priced
                  contracts.''.                contracts'' (30.001).
2..............  Included old CAS             Updated definitions to
                  definitions and              match CAS definitions and
                  terminology of ``Mandatory   terminology for
                  change,'' ``Voluntary        ``Required change,''
                  change,'' and ``Desirable    ``Unilateral change,''
                  change.''.                   and ``Desirable change''
                                               (30.001).
----------------
                            Responsibilities
------------------------------------------------------------------------
3..............  ACO is used throughout FAR   Changed Administrative
                  section.                     Contracting Officer (ACO)
                                               to Cognizant Federal
                                               Agency Official (CFAO) to
                                               be consistent with
                                               current CAS.
----------------

[[Page 11751]]

 
                             Determinations
------------------------------------------------------------------------
4..............  Did not contain actions for  Provides actions to be
                  what to do if Disclosure     taken when the Disclosure
                  Statement is adequate,       Statement is adequate
                  inadequate, compliant, or    (30.202-7(a)(2)(i)),
                  noncompliant.                inadequate (30.202-
                                               7(a)(2)(ii)), compliant
                                               (30.202-7(b)(2)), or
                                               noncompliant (30.605(b)).
----------------
                               Materiality
------------------------------------------------------------------------
5..............  No discussion of             Added new section on
                  materiality.                 materiality (30.602).
                                               Permits determination of
                                               immateriality at any time
                                               in the process;
                                               references CAS section on
                                               materiality in
                                               determining whether a
                                               change/noncompliance is
                                               immaterial; and requires
                                               CFAO to document
                                               rationale for any
                                               determination that the
                                               cost impact is
                                               immaterial.
----------------
                            Required Changes
------------------------------------------------------------------------
6..............  Did not address early        Requires CFAO to process
                  implementation of a          early implementation of a
                  required change.             required change as a
                                               unilateral change, unless
                                               determined to be
                                               desirable (30.603-
                                               1(d)(2)).
----------------
                    Unilateral and Desirable Changes
------------------------------------------------------------------------
7..............  Did not address how a        States that until a change
                  unilateral change is         is determined to be
                  treated if a decision on     desirable, it shall be
                  desirability has not been    treated as a unilateral
                  made.                        change (30.603-2(b)(2)).
8..............  Did not provide information  Provides specific factors
                  on how to determine          to consider in
                  whether a change is          determining whether a
                  desirable.                   change is desirable
                                               (30.603-2(b)(3)).
9..............  Did not address retroactive  Provides specific section
                  changes.                     on retroactive changes
                                               (30.603-2(d)). CFAO can
                                               make a change retroactive
                                               to the beginning of the
                                               fiscal year in which the
                                               change was made.
10.............  Did not include exemption    Includes current CAS
                  from contract price          exemption from contract
                  adjustments for changes      price adjustments for
                  related to external          changes related to
                  restructuring activities.    external restructuring
                                               activities (30.603-2(e)).
----------------
     Processing Changes to Disclosed or Established Cost Accounting
                Practices, And Processing Noncompliances
------------------------------------------------------------------------
11.............  No process for evaluating    Includes process for
                  changes or noncompliances.   evaluating changes
                                               (30.604(c)) and
                                               noncompliances (30.605).
12.............  No separation of cost        Separate cost impact
                  impact computation and       computation (30.604(h)
                  cost impact resolution.      and 30.605(h)) from cost
                                               impact resolution
                                               (30.606).
13.............  Required submittal of a GDM  Requires submittal of GDM
                  in format specified by ACO   in format specified by
                  for use in determining       CFAO, provided certain
                  whether cost impact is       basic information is
                  material.                    included (30.604(e)(3)).
                                               GDM can be used as basis
                                               to negotiate cost impact
                                               (30.604(f)(1) and
                                               30.605(e)(1)). Permits
                                               contractor to submit DCI
                                               proposal in lieu of GDM
                                               proposal (30.604(d)(3)
                                               and 30.605(d)(3)).
14.............  Required DCI showing cost    Requires DCI in format
                  impact for each contract.    specified by CFAO,
                  DCI required anytime cost    provided certain basic
                  impact is material.          information is included.
                                               DCI does not need to
                                               include every contract if
                                               CFAO and contractor can
                                               agree on sample and to
                                               project results to
                                               universe (30.604(e)(2)(i)
                                               and 30.605(d)(2)(i)). DCI
                                               only required when GDM is
                                               not adequate for
                                               resolving cost impact
                                               (30.604(f)(2) and
                                               30.605(e)(2)).
15.............  Provided no information on   Provides specific
                  what constituted increased   information on what
                  or decreased cost.           constitutes increased and
                                               decreased cost. Does not
                                               include how to compute
                                               increased cost in the
                                               aggregate
                                               (30.604(h)(3)(iv) and
                                               30.605(h)(6)). Also see
                                               Comment 26.
16.............  Did not discuss equitable    States that cost impact
                  adjustments for required     computation is used as
                  or desirable changes.        basis for determining
                                               amount of equitable
                                               adjustments resulting
                                               from required or
                                               desirable changes
                                               (30.604(h)(4)).
----------------
                                Interest
------------------------------------------------------------------------
17.............  Does not address use of      Does not address use of
                  simple versus compound       simple versus compound
                  interest in determining      interest in determining
                  amounts due resulting from   amounts due resulting
                  increased cost paid on a     from increased cost paid
                  noncompliance.               on a noncompliance
                                               (30.605(g)).
----------------
                         Resolving Cost Impacts
------------------------------------------------------------------------
18.............  Requires ACO to coordinate   Requires CFAO to
                  with all PCO's whose         coordinate with all PCO's
                  contracts will be affected   whose contracts will be
                  by $10,000 or more.          affected by $100,000 or
                                               more (30.606(a)).

[[Page 11752]]

 
19.............  Did not discuss which cost   Specifies which cost
                  impacts could and could      impacts cannot be
                  not be combined.             combined. Never combine a
                                               required change and a
                                               unilateral change; a
                                               required change and a
                                               noncompliance; a
                                               desirable change and a
                                               unilateral change; a
                                               desirable change and a
                                               noncompliance
                                               (30.606(a)(3)(i)). Never
                                               combine, unless all have
                                               increased costs, one or
                                               more unilateral changes;
                                               one or more
                                               noncompliances;
                                               unilateral changes and
                                               noncompliances
                                               (30.606(a)(3)(ii)). May
                                               treat as a single change
                                               any change affecting
                                               costs flowing between
                                               multiple segments and
                                               implementation of a
                                               common accounting
                                               practice among segments
                                               (30.606(a)(3)(iii)).
20.............  ACO notifies PCO's of        CFAO settles cost impact
                  settlement, PCO's issue      by modifying single
                  modifications adjusting      contract, more than one
                  contracts. No option other   contract, all contracts,
                  than adjusting contracts.    or some alternate method
                                               (e.g., adjusting indirect
                                               rates) (30.606(a)(2)). In
                                               adjusting indirect rates,
                                               CFAO must provide for
                                               appropriate gross-up to
                                               reflect Government
                                               participation
                                               (30.606(d)(3)(ii)) and
                                               can only make adjustments
                                               to final indirect cost
                                               rates (30.606(d)(3)(i)).
----------------
                       Subcontract Administration
------------------------------------------------------------------------
21.............  Does not provide for         Specifies that remedies
                  remedies if a                are at the prime contract
                  subcontractor refuses to     level if a subcontractor
                  submit a required GDM or     refuses to submit a
                  DCI proposal.                required GDM or DCI
                                               proposal (30.607).
----------------
                 Contract Clause--Administration of CAS
------------------------------------------------------------------------
22.............  Contract clause did not      Contract clause
                  reflect process.             incorporates process
                                               (52.230-6).
----------------
 Contract Clause--Proposal Disclosure--Cost Accounting Practice Changes
------------------------------------------------------------------------
23.............  No provision to address how  Added a new provision to
                  to price proposal when       address how to price
                  contract award will result   proposal when contract
                  in a change in accounting    award will result in a
                  practice.                    change in accounting
                                               practice (52.230-7).
------------------------------------------------------------------------

    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

D. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because contracts and 
subcontracts with small businesses are exempt from all cost accounting 
standard requirements in accordance with 48 CFR 9903.201-1(b)(3).

E. Paperwork Reduction Act

    The Paperwork Reduction Act does apply; however, these changes to 
the FAR do not impose additional information collection requirements to 
the paperwork burden previously approved under OMB Control Number 9000-
0129.

List of Subjects in 48 CFR Parts 30 and 52

    Government procurement.

    Dated: February 24, 2005.
Rodney P. Lantier,
Director, Contract Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 30 and 52 as set forth 
below:
0
1. The authority citation for 48 CFR parts 30 and 52 is revised to read 
as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 30--COST ACCOUNTING STANDARDS ADMINISTRATION

0
2. Add section 30.001 to read as follows:


30.001  Definitions.

    As used in this part--
    Affected CAS-covered contract or subcontract means a contract or 
subcontract subject to Cost Accounting Standards (CAS) rules and 
regulations for which a contractor or subcontractor--
    (1) Used one cost accounting practice to estimate costs and a 
changed cost accounting practice to accumulate and report costs under 
the contract or subcontract; or
    (2) Used a noncompliant practice for purposes of estimating or 
accumulating and reporting costs under the contract or subcontract.
    Cognizant Federal agency official (CFAO) means the contracting 
officer assigned by the cognizant Federal agency to administer CAS.
    Desirable change means a unilateral change to a contractor's 
established or disclosed cost accounting practices that the CFAO finds 
is desirable and not detrimental to the Government and is, therefore, 
not subject to the no increased cost prohibition provisions of CAS-
covered contracts and subcontracts affected by the change.
    Fixed-price contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described at 16.202, 
16.203 (except when price adjustments are based on actual costs of 
labor or material, described at 16.203-1(a)(2)), and 16.207;
    (2) Fixed-price incentive contracts and subcontracts where the 
price is not adjusted based on actual costs incurred (Subpart 16.4);
    (3) Orders issued under indefinite-delivery contracts and 
subcontracts where final payment is not based on actual costs incurred 
(Subpart 16.5); and
    (4) The fixed-hourly rate portion of time-and-materials and labor-
hours

[[Page 11753]]

contracts and subcontracts (Subpart 16.6).
    Flexibly-priced contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described at 16.203-
1(a)(2), 16.204, 16.205, and 16.206;
    (2) Cost-reimbursement contracts and subcontracts (Subpart 16.3);
    (3) Incentive contracts and subcontracts where the price may be 
adjusted based on actual costs incurred (Subpart 16.4);
    (4) Orders issued under indefinite-delivery contracts and 
subcontracts where final payment is based on actual costs incurred 
(Subpart 16.5); and
    (5) The materials portion of time-and-materials contracts and 
subcontracts (Subpart 16.6).
    Noncompliance means a failure in estimating, accumulating, or 
reporting costs to--
    (1) Comply with applicable CAS; or
    (2) Consistently follow disclosed or established cost accounting 
practices.
    Required change means--
    (1) A change in cost accounting practice that a contractor is 
required to make in order to comply with a CAS, or a modification or 
interpretation thereof, that subsequently becomes applicable to an 
existing CAS-covered contract due to the receipt of another CAS-covered 
contract or subcontract; or
    (2) A prospective change to a disclosed or established cost 
accounting practice when the CFAO determines that the former practice 
was in compliance with applicable CAS and the change is necessary for 
the contractor to remain in compliance.
    Unilateral change means a change in cost accounting practice from 
one compliant practice to another compliant practice that a contractor 
with a CAS-covered contract(s) or subcontract(s) elects to make that 
has not been deemed a desirable change by the CFAO and for which the 
Government will pay no aggregate increased costs.

0
3. Amend section 30.201-3 by adding paragraph (c) to read as follows:


30.201-3  Solicitation provisions.

* * * * *
    (c) Insert the provision at FAR 52.230-7, Proposal Disclosure--Cost 
Accounting Practice Changes, in solicitations for contracts subject to 
CAS as specified in 48 CFR 9903.201 (FAR Appendix).
0
4. Amend section 30.202-6 by revising paragraphs (b) and (d) to read as 
follows:


30.202-6  Responsibilities.

* * * * *
    (b) The contracting officer shall not award a CAS-covered contract 
until the cognizant Federal agency official (CFAO) has made a written 
determination that a required Disclosure Statement is adequate unless, 
in order to protect the Government's interest, the agency head, on a 
nondelegable basis, authorizes award without obtaining submission of 
the required Disclosure Statement (see 48 CFR 9903.202-2). In this 
event, the contractor shall submit the required Disclosure Statement 
and the CFAO shall make a determination of adequacy as soon as possible 
after the award.
* * * * *
    (d) The CFAO is responsible for issuing determinations of adequacy 
and compliance of the Disclosure Statement.

0
5. Revise section 30.202-7 to read as follows:


30.202-7  Determinations.

    (a) Adequacy determination. (1) As prescribed by 48 CFR 9903.202-6 
(FAR Appendix), the auditor shall--
    (i) Conduct a review of the Disclosure Statement to ascertain 
whether it is current, accurate, and complete; and
    (ii) Report the results to the CFAO.
    (2) The CFAO shall determine if the Disclosure Statement adequately 
describes the contractor's cost accounting practices. Also, the CFAO 
shall--
    (i) If the Disclosure Statement is adequate, notify the contractor 
in writing, and provide a copy to the auditor with a copy to the 
contracting officer if the proposal triggers submission of a Disclosure 
Statement. The notice of adequacy shall state that--
    (A) The disclosed practices are adequately described and the CFAO 
currently is not aware of any additional practices that should be 
disclosed;
    (B) The notice is not a determination that all cost accounting 
practices were disclosed; and
    (C) The contractor shall not consider a disclosed practice, by 
virtue of such disclosure, an approved practice for estimating 
proposals or accumulating and reporting contract and subcontract cost 
data; or
    (ii) If the Disclosure Statement is inadequate, notify the 
contractor of the inadequacies and request a revised Disclosure 
Statement.
    (3) Generally, the CFAO should furnish the contractor notification 
of adequacy or inadequacy within 30 days after the CFAO receives the 
Disclosure Statement.
    (b) Compliance determination. (1) After the notification of 
adequacy, the auditor shall--
    (i) Conduct a detailed compliance review to ascertain whether or 
not the disclosed practices comply with CAS and Part 31, as applicable; 
and
    (ii) Advise the CFAO of the results.
    (2) The CFAO shall make a determination of compliance or take 
action regarding a report of alleged noncompliance in accordance with 
30.605(b). Such action should include requesting a revised Disclosure 
Statement that corrects the CAS noncompliance. Noncompliances with Part 
31 shall be processed separately.

0
6. Amend section 30.202-8 by revising paragraph (a) to read as follows:


30.202-8  Subcontractor disclosure statements.

    (a) When the Government requires determinations of adequacy of 
subcontractor disclosure statements, the CFAO for the subcontractor 
shall provide this determination to the CFAO for the contractor or next 
higher-tier subcontractor. The higher-tier CFAO shall not change the 
determination of the lower-tier CFAO.
* * * * *

0
7. Revise Subpart 30.6 to read as follows:

Subpart 30.6--CAS Administration

Sec.
30.601 Responsibility.
30.602 Materiality.
30.603 Changes to disclosed or established cost accounting 
practices.
30.603-1 Required changes.
30.603-2 Unilateral and desirable changes.
30.604 Processing changes to disclosed or established cost 
accounting practices.
30.605 Processing noncompliances.
30.606 Resolving cost impacts.
30.607 Subcontract administration.


30.601  Responsibility.

    (a) The CFAO shall perform CAS administration for all contracts and 
subcontracts in a business unit, even when the contracting officer 
retains other administration functions. The CFAO shall make all CAS-
related required determinations and findings (see Subpart 1.7) for all 
CAS-covered contracts and subcontracts, including--
    (1) Whether a change in cost accounting practice or noncompliance 
has occurred; and
    (2) If a change in cost accounting practice or noncompliance has 
occurred, how any resulting cost impacts are resolved.
    (b) Within 30 days after the award of any new contract subject to 
CAS, the contracting officer making the award shall request the CFAO to 
perform administration for CAS matters (see Subpart 42.2). For 
subcontract awards, the contractor awarding the subcontract must follow 
the procedures at 52.230-6(b).

[[Page 11754]]

30.602  Materiality.

    (a) In determining materiality, the CFAO shall use the criteria in 
48 CFR 9903.305 (FAR Appendix).
    (b) A CFAO determination of materiality--
    (1) May be made before or after a general dollar magnitude proposal 
has been submitted, depending on the particular facts and 
circumstances; and
    (2) Shall be based on adequate documentation.
    (c) When the CFAO determines the cost impact is immaterial, the 
CFAO shall--
    (1) Make no contract adjustments and conclude the cost impact 
process;
    (2) Document the rationale for the determination; and
    (3) In the case of noncompliance issues, inform the contractor 
that--
    (i) The noncompliance should be corrected; and
    (ii) If the noncompliance is not corrected, the Government reserves 
the right to make appropriate contract adjustments should the cost 
impact become material in the future.
    (d) For required, unilateral, and desirable changes, and CAS 
noncompliances, when the amount involved is material, the CFAO shall 
adjust the contract or use another suitable method (see 30.606).


30.603  Changes to disclosed or established cost accounting practices.


30.603-1  Required changes.

    (a) General. Offerors shall state whether or not the award of a 
contract would require a change to an established cost accounting 
practice affecting existing contracts and subcontracts (see 52.230-1). 
The contracting officer shall notify the CFAO if the offeror states 
that a change in cost accounting practice would be required.
    (b) CFAO responsibilities. Prior to making an equitable adjustment 
under the applicable paragraph(s) that address a required change at 
52.230-2, Cost Accounting Standards; 52.230-3, Disclosure and 
Consistency of Cost Accounting Practices; or 52.230-5, Cost Accounting 
Standards--yEducational Institution, the CFAO shall determine that--
    (1) The cost accounting practice change is required to comply with 
a CAS, or a modification or interpretation thereof, that subsequently 
became applicable to one or more contracts or subcontracts; or
    (2) The former cost accounting practice was in compliance with 
applicable CAS and the change is necessary to remain in compliance.
    (c) Notice and proposal preparation. (1) When the award of a 
contract would require a change to an established cost accounting 
practice, the provision at 52.230-7, Proposal Disclosure--Cost 
Accounting Practice Changes, requires the offeror to--
    (i) Prepare the contract pricing proposal in response to the 
solicitation using the changed cost accounting practice for the period 
of performance for which the practice will be used; and
    (ii) Submit a description of the changed cost accounting practice 
to the contracting officer and the CFAO as pricing support for the 
proposal.
    (2) When a change is required to remain in compliance (for reasons 
other than a contract award) or to comply with a new or modified 
standard, the clause at 52.230-6, Administration of Cost Accounting 
Standards, requires the contractor to--
    (i) Submit a description of the change to the CFAO not less than 60 
days (or other mutually agreeable date) before implementation of the 
change; and
    (ii) Submit rationale to support any contractor written statement 
that the cost impact of the change is immaterial.
    (d) Equitable adjustments for new or modified standards. (1) 
Required changes made to comply with new or modified standards may 
require equitable adjustments, but only to those contracts awarded 
before the effective date of the new or modified standard (see 52.230-
2, 52.230-3, or 52.230-5).
    (2) When a contractor elects to implement a required change to 
comply with a new or modified standard prior to the applicability date 
of the standard, the CFAO shall administer the change as a unilateral 
change (see 30.603-2). Contractors shall not receive an equitable 
adjustment that will result in increased costs in the aggregate to the 
Government prior to the applicability date unless the CFAO determines 
that the unilateral change is a desirable change.


30.603-2  Unilateral and desirable changes.

    (a) Unilateral changes. (1) The contractor may unilaterally change 
its disclosed or established cost accounting practices, but the 
Government shall not pay any increased cost, in the aggregate, as a 
result of the unilateral change.
    (2) Prior to making any contract price or cost adjustments under 
the applicable paragraph(s) addressing a unilateral change at 52.230-2, 
52.230-3, or 52.230-5, the CFAO shall determine that--
    (i) The contemplated contract price or cost adjustments will 
protect the Government from the payment of the estimated increased 
costs, in the aggregate; and
    (ii) The net effect of the contemplated adjustments will not result 
in the recovery of more than the increased costs to the Government, in 
the aggregate.
    (b) Desirable changes. (1) Prior to taking action under the 
applicable paragraph(s) addressing a desirable change at 52.230-2, 
52.230-3, or 52.230-5, the CFAO shall determine the change is a 
desirable change and not detrimental to the interests of the 
Government.
    (2) Until the CFAO has determined a change to a cost accounting 
practice is a desirable change, the change is a unilateral change.
    (3) Some factors to consider in determining if a change is 
desirable include, but are not limited to, whether--
    (i) The contractor must change the cost accounting practices it 
uses for Government contract and subcontract costing purposes to remain 
in compliance with the provisions of Part 31;
    (ii) The contractor is initiating management actions directly 
associated with the change that will result in cost savings for 
segments with CAS-covered contracts and subcontracts over a period for 
which forward pricing rates are developed or 5 years, whichever is 
shorter, and the cost savings are reflected in the forward pricing 
rates; and
    (iii) Funds are available if the determination would necessitate an 
upward adjustment of contract cost or price.
    (c) Notice and proposal preparation. (1) When a contractor makes a 
unilateral change, the clause at 52.230-6, Administration of Cost 
Accounting Standards, requires the contractor to--
    (i) Submit a description of the change to the CFAO not less than 60 
days (or other mutually agreeable date) before implementation of the 
change; and
    (ii) Submit rationale to support any contractor written statement 
that the cost impact of the change is immaterial.
    (2) If a contractor implements the change in cost accounting 
practice without submitting the notice as required in paragraph (c)(1) 
of this subsection, the CFAO may determine the change a failure to 
follow a cost accounting practice consistently and process it as a 
noncompliance in accordance with 30.605.
    (d) Retroactive changes. (1) If a contractor requests that a 
unilateral change be retroactive, the contractor shall submit 
supporting rationale.

[[Page 11755]]

    (2) The CFAO shall promptly evaluate the contractor's request and 
shall, as soon as practical, notify the contractor in writing whether 
the request is or is not approved.
    (3) The CFAO shall not approve a date for the retroactive change 
that is before the beginning of the contractor's fiscal year in which 
the request is made.
    (e) Contractor accounting changes due to external restructuring 
activities. The requirements for contract price and cost adjustments do 
not apply to compliant cost accounting practice changes that are 
directly associated with external restructuring activities that are 
subject to and meet the requirements of 10 U.S.C. 2325. However, the 
disclosure requirements in 52.230-6(b) shall be followed.


30.604  Processing changes to disclosed or established cost accounting 
practices.

    (a) Scope. This section applies to required, unilateral, and 
desirable changes in cost accounting practices.
    (b) Procedures. Upon receipt of the contractor's notification and 
description of the change in cost accounting practice, the CFAO, with 
the assistance of the auditor, should review the proposed change 
concurrently for adequacy and compliance. The CFAO shall--
    (1) If the description of the change is both adequate and 
compliant, notify the contractor in writing and--
    (i) For required or unilateral changes (except those requested to 
be determined desirable changes), request the contractor submit a 
general dollar magnitude (GDM) proposal by a specified date, unless the 
CFAO determines the cost impact is immaterial; or
    (ii) For unilateral changes that the contractor requests to be 
determined desirable changes, inform the contractor that the request 
shall include supporting rationale and--
    (A) For any request based on the criteria in 30.603-2(b)(3)(ii), 
the data necessary to demonstrate the required cost savings; or
    (B) For any request other than those based on the criteria in 
30.603-2(b)(3)(ii), a GDM proposal and any other data necessary for the 
CFAO to determine if the change is a desirable change;
    (2) If the description of the change is inadequate, request a 
revised description of the new cost accounting practice; and
    (3) If the disclosed practice is noncompliant, notify the 
contractor in writing that, if implemented, the CFAO will determine the 
cost accounting practice to be noncompliant and process it accordingly.
    (c) Evaluating requests for desirable changes. (1) When a 
contractor requests a unilateral change be determined a desirable 
change, the CFAO shall promptly evaluate the contractor's request and, 
as soon as practical, notify the contractor in writing whether the 
change is a desirable change or the request is denied.
    (2) If the CFAO determines the change is a desirable change, the 
CFAO shall negotiate any cost or price adjustments that may be needed 
to resolve the cost impact (see 30.606).
    (3) If the request is denied, the change is a unilateral change and 
shall be processed accordingly.
    (d) General dollar magnitude proposal. The GDM proposal--
    (1) Provides information to the CFAO on the estimated overall 
impact of a change in cost accounting practice on affected CAS-covered 
contracts and subcontracts that were awarded based on the previous cost 
accounting practice;
    (2) Assists the CFAO in determining whether individual contract 
price or cost adjustments are required; and
    (3) The contractor may submit a detailed cost-impact (DCI) proposal 
in lieu of a GDM proposal provided the DCI proposal is in accordance 
with paragraph (g) of this section.
    (e) General dollar magnitude proposal content. The GDM proposal--
    (1) Shall calculate the cost impact in accordance with paragraph 
(h) of this section;
    (2) May use one or more of the following methods to determine the 
increase or decrease in cost accumulations:
    (i) A representative sample of affected CAS-covered contracts and 
subcontracts.
    (ii) The change in indirect rates multiplied by the total estimated 
base computed for each of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (iii) Any other method that provides a reasonable approximation of 
the total increase or decrease in cost accumulations for all affected 
fixed-price and flexibly-priced contracts and subcontracts.
    (3) May be in any format acceptable to the CFAO but, as a minimum, 
shall include the following data:
    (i) A general dollar magnitude estimate of the total increase or 
decrease in cost accumulations by Executive agency, including any 
impact the change may have on contract and subcontract incentives, 
fees, and profits, for each of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (ii) For unilateral changes, the increased or decreased costs to 
the Government for each of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts; and
    (4) When requested by the CFAO, shall identify all affected CAS-
covered contracts and subcontracts.
    (f) General dollar magnitude proposal evaluation. The CFAO, with 
the assistance of the auditor, shall promptly evaluate the GDM 
proposal. If the cost impact is immaterial, the CFAO shall notify the 
contractor in writing and conclude the cost-impact process with no 
contract adjustments. Otherwise, the CFAO shall--
    (1) Negotiate and resolve the cost impact (see 30.606). If 
necessary, the CFAO may request that the contractor submit a revised 
GDM proposal by a specified date with specific additional data needed 
to resolve the cost impact (e.g., an expanded sample of affected CAS-
covered contracts and subcontracts or a revised method of computing the 
increase or decrease in cost accumulations); or
    (2) Request that the contractor submit a DCI proposal by a 
specified date if the CFAO determines that the GDM proposal is not 
sufficient to resolve the cost impact.
    (g) Detailed cost-impact proposal. The DCI proposal--
    (1) Shall calculate the cost impact in accordance with paragraph 
(h) of this section;
    (2) Shall show the estimated increase or decrease in cost 
accumulations for each affected CAS-covered contract and subcontract 
unless the CFAO and contractor agree to--
    (i) Include only those affected CAS-covered contracts and 
subcontracts exceeding a specified amount; and
    (ii) Estimate the total increase or decrease in cost accumulations 
for all affected CAS-covered contracts and subcontracts, using the 
results in paragraph (g)(2)(i) of this section;
    (3) May be in any format acceptable to the CFAO but, as a minimum, 
shall include the requirements at paragraphs (e)(3)(i) and (ii) of this 
section; and
    (4) When requested by the CFAO, shall identify all affected 
contracts and subcontracts.
    (h) Calculating cost impacts. The cost impact calculation shall--

[[Page 11756]]

    (1) Include all affected CAS-covered contracts and subcontracts 
regardless of their status (i.e., open or closed) or the fiscal year(s) 
in which the costs are incurred (i.e., whether or not the final 
indirect rates have been established);
    (2) Combine the cost impact for all affected CAS-covered contracts 
and subcontracts for all segments if the effect of a change results in 
costs flowing between those segments;
    (3) For unilateral changes--
    (i) Determine the increased or decreased cost to the Government for 
flexibly-priced contracts and subcontracts as follows:
    (A) When the estimated cost to complete using the changed practice 
exceeds the estimated cost to complete using the current practice, the 
difference is increased cost to the Government.
    (B) When the estimated costs to complete using the changed practice 
is less than the estimated cost to complete using the current practice, 
the difference is decreased cost to the Government.
    (ii) Determine the increased or decreased cost to the Government 
for fixed-price contracts and subcontracts as follows:
    (A) When the estimated cost to complete using the changed practice 
is less than the estimated cost to complete using the current practice, 
the difference is increased cost to the Government.
    (B) When the estimated cost to complete using the changed practice 
exceeds the estimated cost to complete using the current practice, the 
difference is decreased cost to the Government.
    (iii) Calculate the total increase or decrease in contract and 
subcontract incentives, fees, and profits associated with the increased 
or decreased cost to the Government in accordance with 48 CFR 
9903.306(c). The associated increase or decrease is based on the 
difference between the negotiated incentives, fees and profits and the 
amounts that would have been negotiated had the cost impact been known 
at the time the contracts and subcontracts were negotiated.
    (iv) Calculate the increased cost to the Government in the 
aggregate.
    (4) For equitable adjustments for required or desirable changes--
    (i) Estimated increased cost accumulations are the basis for 
increasing contract prices, target prices and cost ceilings; and
    (ii) Estimated decreased cost accumulations are the basis for 
decreasing contract prices, target prices and cost ceilings.
    (i) Remedies. If the contractor does not submit the accounting 
change description or the proposals required in paragraph (d) or (g) of 
this section within the specified time, or any extension granted by the 
CFAO, the CFAO shall--
    (1) With the assistance of the auditor, estimate the general dollar 
magnitude of the cost impact on affected CAS-covered contracts and 
subcontracts; and
    (2) Take one or both of the following actions:
    (i) Withhold an amount not to exceed 10 percent of each subsequent 
payment related to the contractor's CAS-covered contracts (up to the 
estimated general dollar magnitude of the cost impact), until the 
contractor furnishes the required information.
    (ii) Issue a final decision in accordance with 33.211 and 
unilaterally adjust the contract(s) by the estimated amount of the cost 
impact.


30.605  Processing noncompliances.

    (a) General. Prior to making any contract price or cost adjustments 
under the applicable paragraph(s) addressing noncompliance at 52.230-2, 
52.230-3, or 52.230-5, the CFAO shall determine that--
    (1) The contemplated contract price or cost adjustments will 
protect the Government from the payment of increased costs, in the 
aggregate;
    (2) The net effect of the contemplated contract price or cost 
adjustments will not result in the recovery of more than the increased 
costs to the Government, in the aggregate;
    (3) The net effect of any invoice adjustments made to correct an 
estimating noncompliance will not result in the recovery of more than 
the increased costs paid by the Government, in the aggregate; and
    (4) The net effect of any interim and final voucher billing 
adjustments made to correct a cost accumulation noncompliance will not 
result in the recovery of more than the increased cost paid by the 
Government, in the aggregate.
    (b) Notice and determination. (1) Within 15 days of receiving a 
report of alleged noncompliance from the auditor, the CFAO shall--
    (i) Notify the auditor that the CFAO disagrees with the alleged 
noncompliance; or
    (ii) Issue a notice of potential noncompliance to the contractor 
and provide a copy to the auditor.
    (2) The notice of potential noncompliance shall--
    (i) Notify the contractor in writing of the exact nature of the 
noncompliance; and
    (ii) Allow the contractor 60 days or other mutually agreeable date 
to--
    (A) Agree or submit reasons why the contractor considers the 
existing practices to be in compliance; and
    (B) Submit rationale to support any written statement that the cost 
impact of the noncompliance is immaterial.
    (3) The CFAO shall--
    (i) If applicable, review the reasons why the contractor considers 
the existing practices to be compliant or the cost impact to be 
immaterial;
    (ii) Make a determination of compliance or noncompliance consistent 
with 1.704; and
    (iii) Notify the contractor and the auditor in writing of the 
determination of compliance or noncompliance and the basis for the 
determination.
    (4) If the CFAO makes a determination of noncompliance, the CFAO 
shall follow the procedures in paragraphs (c) through (h) of this 
section, as appropriate, unless the CFAO also determines the cost 
impact is immaterial. If immaterial, the CFAO shall--
    (i) Inform the contractor in writing that--
    (A) The noncompliance should be corrected; and
    (B) If the noncompliance is not corrected, the Government reserves 
the right to make appropriate contract adjustments should the 
noncompliance become material in the future; and
    (ii) Conclude the cost-impact process with no contract adjustments.
    (c) Correcting noncompliances. (1) The clause at 52.230-6 requires 
the contractor to submit a description of any cost accounting practice 
change needed to correct a noncompliance within 60 days after the 
earlier of--
    (i) Agreement with the CFAO that there is a noncompliance; or
    (ii) Notification by the CFAO of a determination of noncompliance.
    (2) The CFAO, with the assistance of the auditor, should review the 
proposed change to correct the noncompliance concurrently for adequacy 
and compliance (see 30.202-7). The CFAO shall--
    (i) When the description of the change is both adequate and 
compliant--
    (A) Notify the contractor in writing;
    (B) Request that the contractor submit by a specified date a 
general dollar magnitude (GDM) proposal, unless the CFAO determines the 
cost impact is immaterial; and
    (C) Follow the procedures at paragraph (b)(4) of this section if 
the CFAO determines the cost impact is immaterial.
    (ii) If the description of the change is inadequate, request a 
revised description of the new cost accounting practice; or
    (iii) If the disclosed practice is noncompliant, notify the 
contractor in writing that, if implemented, the CFAO

[[Page 11757]]

will determine the cost accounting practice to be noncompliant and 
process it accordingly.
    (d) General dollar magnitude proposal content. The GDM proposal--
    (1) Shall calculate the cost impact in accordance with paragraph 
(h) of this section;
    (2) May use one or more of the following methods to determine the 
increase or decrease in contract and subcontract price or cost 
accumulations, as applicable:
    (i) A representative sample of affected CAS-covered contracts and 
subcontracts affected by the noncompliance.
    (ii) When the noncompliance involves cost accumulation, the change 
in indirect rates multiplied by the applicable base for flexibly-priced 
contracts and subcontracts.
    (iii) Any other method that provides a reasonable approximation of 
the total increase or decrease in contract and subcontract prices and 
cost accumulations;
    (3) The contractor may submit a DCI proposal in lieu of a GDM 
proposal provided the DCI proposal is in accordance with paragraph (f) 
of this section.
    (4) May be in any format acceptable to the CFAO but, as a minimum, 
shall include the following data:
    (i) The total increase or decrease in contract and subcontract 
prices and cost accumulations, as applicable, by Executive agency, 
including any impact the noncompliance may have on contract and 
subcontract incentives, fees, and profits, for each of the following 
groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (ii) The increased or decreased costs to the Government for each of 
the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (iii) The total overpayments and underpayments for fixed-price and 
flexibly-priced contracts made by the Government during the period of 
noncompliance; and
    (5) When requested by the CFAO, shall identify all affected CAS-
covered contracts and subcontracts.
    (e) General dollar magnitude proposal evaluation. The CFAO shall 
promptly evaluate the GDM proposal. If the cost impact is immaterial, 
the CFAO shall follow the requirements in paragraph (b)(4) of this 
section. Otherwise, the CFAO shall--
    (1) Negotiate and resolve the cost impact (see 30.606). If 
necessary, the CFAO may request the contractor submit a revised GDM 
proposal by a specified date, with specific additional data needed to 
resolve the cost impact (e.g., an expanded sample of affected CAS-
covered contracts and subcontracts or a revised method of computing the 
increase or decrease in contract and subcontract price and cost 
accumulations); or
    (2) Request that the contractor submit a DCI proposal by a 
specified date if the CFAO determines that the GDM proposal is not 
sufficient to resolve the cost impact.
    (f) Detailed cost-impact proposal. The DCI proposal--
    (1) Shall calculate the cost impact in accordance with paragraph 
(h) of this section.
    (2) Shall show the increase or decrease in price and cost 
accumulations, as applicable for each affected CAS-covered contract and 
subcontract unless the CFAO and contractor agree to--
    (i) Include only those affected CAS-covered contracts and 
subcontracts having--
    (A) Contract and subcontract values exceeding a specified amount 
when the noncompliance involves estimating costs; and
    (B) Incurred costs exceeding a specified amount when the 
noncompliance involves accumulating costs; and
    (ii) Estimate the total increase or decrease in price and cost 
accumulations for all affected CAS-covered contracts and subcontracts 
using the results in paragraph (f)(2)(i) of this section;
    (3) May be in any format acceptable to the CFAO but, as a minimum, 
shall include the information in paragraph (d)(4) of this section; and
    (4) When requested by the CFAO, shall identify all affected CAS-
covered contracts and subcontracts.
    (g) Interest. The CFAO shall--
    (1) Separately identify interest on any increased cost paid, in the 
aggregate, as a result of the noncompliance;
    (2) Compute interest from the date of overpayment to the date of 
repayment using the rate specified in 26 U.S.C. 6621(a)(2).
    (h) Calculating cost impacts. The cost impact calculation shall--
    (1) Include all affected CAS-covered contracts and subcontracts 
regardless of their status (i.e., open or closed) or the fiscal year in 
which the costs are incurred (i.e., whether or not the final indirect 
cost rates have been established);
    (2) Combine the cost impact for all affected CAS-covered contracts 
and subcontracts for all segments if the effect of a change results in 
costs flowing between those segments;
    (3) For noncompliances that involve estimating costs, determine the 
increased or decreased cost to the Government for fixed-price contracts 
and subcontracts as follows:
    (i) When the negotiated contract or subcontract price exceeds what 
the negotiated price would have been had the contractor used a 
compliant practice, the difference is increased cost to the Government.
    (ii) When the negotiated contract or subcontract price is less than 
what the negotiated price would have been had the contractor used a 
compliant practice, the difference is decreased cost to the Government;
    (4) For noncompliances that involve accumulating costs, determine 
the increased or decreased cost to the Government for flexibly-priced 
contracts and subcontracts as follows:
    (i) When the costs that were accumulated under the noncompliant 
practice exceed the costs that would have been accumulated using a 
compliant practice (from the time the noncompliant practice was first 
implemented until the date the noncompliant practice was replaced with 
a compliant practice), the difference is increased cost to the 
Government.
    (ii) When the costs that were accumulated under the noncompliant 
practice are less than the costs that would have been accumulated using 
a compliant practice (from the time the noncompliant practice was first 
implemented until the date the noncompliant practice was replaced with 
a compliant practice) the difference is decreased cost to the 
Government;
    (5) Calculate the total increase or decrease in contract and 
subcontract incentives, fees, and profits associated with the increased 
or decreased costs to the Government in accordance with 48 CFR 
9903.306(c). The associated increase or decrease is based on the 
difference between the negotiated incentives, fees, and profits and the 
amounts that would have been negotiated had the contractor used a 
compliant practice; and
    (6) Calculate the increased cost to the Government in the 
aggregate.
    (i) Remedies. If the contractor does not correct the noncompliance 
or submit the proposal required in paragraph (d) or (f) of this section 
within the specified time, or any extension granted by the CFAO, the 
CFAO shall follow the procedures at 30.604(i).

[[Page 11758]]

30.606  Resolving cost impacts.

    (a) General. (1) The CFAO shall coordinate with the affected 
contracting officers before negotiating and resolving the cost impact 
when the estimated cost impact on any of their contracts is at least 
$100,000. However, the CFAO has the sole authority for negotiating and 
resolving the cost impact.
    (2) The CFAO may resolve a cost impact attributed to a change in 
cost accounting practice or a noncompliance by adjusting a single 
contract, several but not all contracts, all contracts, or any other 
suitable method.
    (3) In resolving the cost impact, the CFAO--
    (i) Shall not combine the cost impacts of any of the following:
    (A) A required change and a unilateral change.
    (B) A required change and a noncompliance.
    (C) A desirable change and a unilateral change.
    (D) A desirable change and a noncompliance.
    (ii) Shall not combine the cost impacts of any of the following 
unless all of the cost impacts are increased costs to Government:
    (A) One or more unilateral changes.
    (B) One or more noncompliances.
    (C) Unilateral changes and noncompliances; and
    (iii) May consider the cost impacts of a unilateral change 
affecting two or more segments to be a single change if--
     (A) The change affects the flow of costs between segments; or
    (B) Implements a common cost accounting practice for two or more 
segments.
    (4) For desirable changes, the CFAO should consider the estimated 
cost impact of associated management actions on contract costs in 
resolving the cost impact.
    (b) Negotiations. The CFAO shall--
    (1) Negotiate and resolve the cost impact on behalf of all 
Government agencies; and
    (2) At the conclusion of negotiations, prepare a negotiation 
memorandum and send copies to the auditor and affected contracting 
officers.
    (c) Contract adjustments. (1) The CFAO may adjust some or all 
contracts with a material cost impact, subject to the provisions in 
paragraphs (c)(2) through (c)(6) of this section.
    (2) In selecting the contract or contracts to be adjusted, the CFAO 
should assure, to the maximum extent practical and subject to the 
provisions in paragraphs (c)(3) through (c)(6) of this section, that 
the adjustments reflect a pro rata share of the cost impact based on 
the ratio of the cost impact of each Executive agency to the total cost 
impact.
    (3) For unilateral changes and noncompliances, the CFAO shall--
    (i) To the maximum extent practical, not adjust the price upward 
for fixed-price contracts;
    (ii) If contract adjustments are made, preclude payment of 
aggregate increased costs by taking one or both of the following 
actions:
    (A) Reduce the contract price on fixed-price contracts.
    (B) Disallow costs on flexibly-priced contracts; and
    (iii) The CFAO may, in consultation with the affected contracting 
officers, increase or decrease individual contract prices, including 
contract cost ceilings or target costs on flexibly-priced contracts. In 
such cases, the CFAO shall limit any upward contract price adjustments 
on affected contracts to the amount of downward price adjustments to 
other affected contracts, i.e., the aggregate price of all contracts 
affected by a unilateral change shall not be increased (48 CFR 
9903.201-6(b)).
    (4) For noncompliances that involve estimating costs, the CFAO--
    (i) Shall, to the extent practical, not adjust the price upward for 
fixed-price contracts;
    (ii) Shall, if contract adjustments are made, preclude payment of 
aggregate increased costs by reducing the contract price on fixed-price 
contracts;
    (iii) May, in consultation with the affected contracting officers, 
increase or decrease individual contract prices, including costs 
ceilings or target costs on flexibly-priced contracts. In such cases, 
the CFAO shall limit any upward contract price adjustments to affected 
contracts to the amount of downward price adjustments to other affected 
contracts, i.e., the aggregate price of all contracts affected by a 
noncompliance that involves estimating costs shall not be increased (48 
CFR 9903.201-6(d));
    (iv) Shall require the contractor to correct the noncompliance, 
i.e., ensure that compliant cost accounting practices will now be 
utilized to estimate proposed contract costs; and
    (v) Shall require the contractor to adjust any invoices that were 
paid based on noncompliant contract prices to reflect the adjusted 
contract prices, after any contract price adjustments are made to 
resolve the noncompliance.
    (5) For noncompliances that involve cost accumulation, the CFAO--
    (i) Shall require the contractor to--
    (A) Correct noncompliant contract cost accumulations in the 
contractor's cost accounting records for affected contracts to reflect 
compliant contract cost accumulations; and
    (B) Adjust interim payment requests (public vouchers and/or 
progress payments) and final vouchers to reflect the difference between 
the costs paid using the noncompliant practice and the costs that 
should have been paid using the compliant practice; or
    (ii) Shall adjust contract prices. In adjusting contract prices, 
the CFAO shall preclude payment of aggregate increased costs by 
disallowing costs on flexibly-priced contracts.
    (A) The CFAO may, in consultation with the affected contracting 
officers, increase or decrease individual contract prices, including 
costs ceilings or target costs on flexibly-priced contracts. In such 
cases, the CFAO shall limit any upward contract price adjustments to 
affected contracts to the amount of downward price adjustments to other 
affected contracts, i.e., the aggregate price of all contracts affected 
by a noncompliance that involves cost accumulation shall not be 
increased (48 CFR 9903.201-6(d)).
    (B) Shall require the contractor to--
    (1) Correct contract cost accumulations in the contractor's cost 
accounting records to reflect the contract price adjustments; and
    (2) Adjust interim payment requests (public vouchers and/or 
progress payments) and final vouchers to reflect the contract price 
adjustments.
    (6) When contract adjustments are made, the CFAO shall--
    (i) Execute the bilateral modifications if the CFAO and contractor 
agree on the amount of the cost impact and the adjustments (see 
42.302(a)(11)(iv)); or
    (ii) When the CFAO and contractor do not agree on the amount of the 
cost impact or the contract adjustments, issue a final decision in 
accordance with 33.211 and unilaterally adjust the contract(s).
    (d) Alternate methods. (1) The CFAO may use an alternate method 
instead of adjusting contracts to resolve the cost impact, provided the 
Government will not pay more, in the aggregate, than would be paid if 
the CFAO did not use the alternate method and the contracting parties 
agree on the use of that alternate method.
    (2) The CFAO may not use an alternate method for contracts when 
application of the alternate method to contracts would result in--
    (i) An under recovery of monies by the Government (e.g., due to 
cost overruns); or
    (ii) Distortions of incentive provisions and relationships between 
target costs, ceiling costs, and actual costs for incentive type 
contracts.

[[Page 11759]]

    (3) When using an alternate method that excludes the costs from an 
indirect cost pool, the CFAO shall--
    (i) Apply such exclusion only to the determination of final 
indirect cost rates (see 42.705); and
    (ii) Adjust the exclusion to reflect the Government participation 
rate for flexibly-priced contracts and subcontracts. For example, if 
there are aggregate increased costs to the Government of $100,000, and 
the indirect cost pool where the adjustment is to be effected has a 
Government participation rate of 50 percent for flexibly-priced 
contracts and subcontracts, the contractor shall exclude $200,000 from 
the indirect cost pool ($100,000/50% = $200,000).


30.607  Subcontract administration.

    When a negotiated CAS price adjustment or a determination of 
noncompliance is required at the subcontract level, the CFAO for the 
subcontractor shall furnish a copy of the negotiation memorandum or the 
determination to the CFAO for the contractor of the next higher-tier 
subcontractor. The CFAO of the contractor or the next higher-tier 
subcontractor shall not change the determination of the CFAO for the 
lower-tier subcontractor. If the subcontractor refuses to submit a GDM 
or DCI proposal, remedies are made at the prime contractor level.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
8. Revise section 52.230-6 to read as follows:


52.230-6  Administration of Cost Accounting Standards.

    As prescribed in 30.201-4(d)(1), insert the following clause:

Administration of Cost Accounting Standards (April 2005)

    For the purpose of administering the Cost Accounting Standards 
(CAS) requirements under this contract, the Contractor shall take 
the steps outlined in paragraphs (b) through (i) and (k) through (n) 
of this clause:
    (a) Definitions. As used in this clause--
    Affected CAS-covered contract or subcontract means a contract or 
subcontract subject to CAS rules and regulations for which a 
Contractor or subcontractor--
    (1) Used one cost accounting practice to estimate costs and a 
changed cost accounting practice to accumulate and report costs 
under the contract or subcontract; or
    (2) Used a noncompliant practice for purposes of estimating or 
accumulating and reporting costs under the contract or subcontract.
    Cognizant Federal agency official (CFAO) means the Contracting 
Officer assigned by the cognizant Federal agency to administer the 
CAS.
    Desirable change means a compliant change to a Contractor's 
established or disclosed cost accounting practices that the CFAO 
finds is desirable and not detrimental to the Government and is, 
therefore, not subject to the no increased cost prohibition 
provisions of CAS-covered contracts and subcontracts affected by the 
change.
    Fixed-price contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described at FAR 
16.202, 16.203, (except when price adjustments are based on actual 
costs of labor or material, described at 16.203-1(a)(2)), and 
16.207;
    (2) Fixed-price incentive contracts and subcontracts where the 
price is not adjusted based on actual costs incurred (FAR Subpart 
16.4);
    (3) Orders issued under indefinite-delivery contracts and 
subcontracts where final payment is not based on actual costs 
incurred (FAR Subpart 16.5); and
    (4) The fixed-hourly rate portion of time-and-materials and 
labor-hours contracts and subcontracts (FAR Subpart 16.6).
    Flexibly-priced contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described 16.203-
1(a)(2) at FAR 16.204, 16.205, and 16.206;
    (2) Cost-reimbursement contracts and subcontracts (FAR Subpart 
16.3);
    (3) Incentive contracts and subcontracts where the price may be 
adjusted based on actual costs incurred (FAR Subpart 16.4);
    (4) Orders issued under indefinite-delivery contracts and 
subcontracts where final payment is based on actual costs incurred 
(FAR Subpart 16.5); and
    (5) The materials portion of time-and-materials contracts and 
subcontracts (FAR Subpart 16.6).
    Noncompliance means a failure in estimating, accumulating, or 
reporting costs to--
    (1) Comply with applicable CAS; or
    (2) Consistently follow disclosed or established cost accounting 
practices.
    Required change means--
    (1) A change in cost accounting practice that a Contractor is 
required to make in order to comply with a CAS, or a modification or 
interpretation thereof, that subsequently becomes applicable to 
existing CAS-covered contracts or subcontracts due to the receipt of 
another CAS-covered contract or subcontract; or
    (2) A prospective change to a disclosed or established cost 
accounting practice when the CFAO determines that the former 
practice was in compliance with applicable CAS and the change is 
necessary for the Contractor to remain in compliance.
    Unilateral change means a change in cost accounting practice 
from one compliant practice to another compliant practice that a 
Contractor with a CAS-covered contract(s) or subcontract(s) elects 
to make that has not been deemed a desirable change by the CFAO and 
for which the Government will pay no aggregate increased costs.
    (b) Submit to the CFAO a description of any cost accounting 
practice change as outlined in paragraphs (b)(1) through (3) of this 
clause (including revisions to the Disclosure Statement, if 
applicable), and any written statement that the cost impact of the 
change is immaterial. If a change in cost accounting practice is 
implemented without submitting the notice required by this 
paragraph, the CFAO may determine the change to be a failure to 
follow paragraph (a)(2) of the clause at FAR 52.230-2, Cost 
Accounting Standards; paragraph (a)(4) of the clause at FAR 52.230-
3, Disclosure and Consistency of Cost Accounting Practices; or 
paragraph (a)(2) of the clause at FAR 52.230-5, Cost Accounting 
Standards--Educational Institution.
    (1) When a description has been submitted for a change in cost 
accounting practice that is dependent on a contact award and that 
contract is subsequently awarded, notify the CFAO within 15 days 
after such award.
    (2) For any change in cost accounting practice not covered by 
(b)(1) of this clause that is required in accordance with paragraphs 
(a)(3) and (a)(4)(i) of the clause at FAR 52.230-2; or paragraphs 
(a)(3), (a)(4)(i), or (a)(4)(iv) of the clause at FAR 52.230-5; 
submit a description of the change to the CFAO not less than 60 days 
(or such other date as may be mutually agreed to by the CFAO and the 
Contractor) before implementation of the change.
    (3) For any change in cost accounting practices proposed in 
accordance with paragraph (a)(4)(ii) or (iii) of the clauses at FAR 
52.230-2 and FAR 52.230-5; or with paragraph (a)(3) of the clause at 
FAR 52.230-3, submit a description of the change not less than 60 
days (or such other date as may be mutually agreed to by the CFAO 
and the Contractor) before implementation of the change. If the 
change includes a proposed retroactive date submit supporting 
rationale.
    (4) Submit a description of the change necessary to correct a 
failure to comply with an applicable CAS or to follow a disclosed 
practice (as contemplated by paragraph (a)(5) of the clause at FAR 
52.230-2 and FAR 52.230-5; or by paragraph (a)(4) of the clause at 
FAR 52.230-3)--
    (i) Within 60 days (or such other date as may be mutually agreed 
to by the CFAO and the Contractor) after the date of agreement with 
the CFAO that there is a noncompliance; or
    (ii) In the event of Contractor disagreement, within 60 days 
after the CFAO notifies the Contractor of the determination of 
noncompliance.
    (c) When requested by the CFAO, submit on or before a date 
specified by the CFAO--
    (1) A general dollar magnitude (GDM) proposal in accordance with 
paragraph (d) or (g) of this clause. The Contractor may submit a 
detailed cost-impact (DCI) proposal in lieu of the requested GDM 
proposal provided the DCI proposal is in accordance with paragraph 
(e) or (h) of this clause;
    (2) A detailed cost-impact (DCI) proposal in accordance with 
paragraph (e) or (h) of this clause;
    (3) For any request for a desirable change that is based on the 
criteria in FAR 30.603-2(b)(3)(ii), the data necessary to 
demonstrate the required cost savings; and
    (4) For any request for a desirable change that is based on 
criteria other than that in

[[Page 11760]]

FAR 30.603-2(b)(3)(ii), a GDM proposal and any other data necessary 
for the CFAO to determine if the change is a desirable change.
    (d) For any change in cost accounting practice subject to 
paragraph (b)(1), (b)(2), or (b)(3) of this clause, the GDM proposal 
shall--
    (1) Calculate the cost impact in accordance with paragraph (f) 
of this clause;
    (2) Use one or more of the following methods to determine the 
increase or decrease in cost accumulations:
    (i) A representative sample of affected CAS-covered contracts 
and subcontracts.
    (ii) The change in indirect rates multiplied by the total 
estimated base computed for each of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (iii) Any other method that provides a reasonable approximation 
of the total increase or decrease in cost accumulations for all 
affected fixed-price and flexibly-priced contracts and subcontracts;
    (3) Use a format acceptable to the CFAO but, as a minimum, 
include the following data:
    (i) The estimated increase or decrease in cost accumulations by 
Executive agency, including any impact the change may have on 
contract and subcontract incentives, fees, and profits, for each of 
the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (ii) For unilateral changes, the increased or decreased costs to 
the Government for each of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts; and
    (4) When requested by the CFAO, identify all affected CAS-
covered contracts and subcontracts.
    (e) For any change in cost accounting practice subject to 
paragraph (b)(1), (b)(2), or (b)(3) of this clause, the DCI proposal 
shall--
    (1) Show the calculation of the cost impact in accordance with 
paragraph (f) of this clause;
    (2) Show the estimated increase or decrease in cost 
accumulations for each affected CAS-covered contract and subcontract 
unless the CFAO and Contractor agree to include--
    (i) Only those affected CAS-covered contracts and subcontracts 
having an estimate to complete exceeding a specified amount; and
    (ii) An estimate of the total increase or decrease in cost 
accumulations for all affected CAS-covered contracts and 
subcontracts, using the results in paragraph (e)(2)(i) of this 
clause;
    (3) Use a format acceptable to the CFAO but, as a minimum, 
include the information in paragraph (d)(3) of this clause; and
    (4) When requested by the CFAO, identify all affected CAS-
covered contracts and subcontracts.
    (f) For GDM and DCI proposals that are subject to the 
requirements of paragraph (d) or (e) of this clause, calculate the 
cost impact as follows:
    (1) The cost impact calculation shall include all affected CAS-
covered contracts and subcontracts regardless of their status (i.e., 
open or closed) or the fiscal year in which the costs were incurred 
(i.e., whether or not the final indirect rates have been 
established).
    (2) For unilateral changes--
    (i) Determine the increased or decreased cost to the Government 
for flexibly-priced contracts and subcontracts as follows:
    (A) When the estimated cost to complete using the changed 
practice exceeds the estimated cost to complete using the current 
practice, the difference is increased cost to the Government.
    (B) When the estimated cost to complete using the changed 
practice is less than the estimated cost to complete using the 
current practice, the difference is decreased cost to the 
Government;
    (ii) Determine the increased or decreased cost to the Government 
for fixed-priced contracts and subcontracts as follows:
    (A) When the estimated cost to complete using the changed 
practice is less than the estimated cost to complete using the 
current practice, the difference is increased cost to the 
Government.
    (B) When the estimated cost to complete using the changed 
practice exceeds the estimated cost to complete using the current 
practice, the difference is decreased cost to the Government;
    (iii) Calculate the total increase or decrease in contract and 
subcontract incentives, fees, and profits associated with the 
increased or decreased costs to the Government in accordance with 48 
CFR 9903.306(c). The associated increase or decrease is based on the 
difference between the negotiated incentives, fees, and profits and 
the amounts that would have been negotiated had the cost impact been 
known at the time the contracts and subcontracts were negotiated; 
and
    (iv) Calculate the increased cost to the Government in the 
aggregate.
    (3) For equitable adjustments for required or desirable 
changes--
    (i) Estimated increased cost accumulations are the basis for 
increasing contract prices, target prices and cost ceilings; and
    (ii) Estimated decreased cost accumulations are the basis for 
decreasing contract prices, target prices and cost ceilings.
    (g) For any noncompliant cost accounting practice subject to 
paragraph (b)(4) of this clause, prepare the GDM proposal as 
follows:
    (1) Calculate the cost impact in accordance with paragraph (i) 
of this clause.
    (2) Use one or more of the following methods to determine the 
increase or decrease in contract and subcontract prices or cost 
accumulations, as applicable:
    (i) A representative sample of affected CAS-covered contracts 
and subcontracts.
    (ii) When the noncompliance involves cost accumulation the 
change in indirect rates multiplied by the applicable base for only 
flexibly-priced contracts and subcontracts.
    (iii) Any other method that provides a reasonable approximation 
of the total increase or decrease.
    (3) Use a format acceptable to the CFAO but, as a minimum, 
include the following data:
    (i) The total increase or decrease in contract and subcontract 
price and cost accumulations, as applicable, by Executive agency, 
including any impact the noncompliance may have on contract and 
subcontract incentives, fees, and profits, for each of the following 
groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (ii) The increased or decreased cost to the Government for each 
of the following groups:
    (A) Fixed-price contracts and subcontracts.
    (B) Flexibly-priced contracts and subcontracts.
    (iii) The total overpayments and underpayments made by the 
Government during the period of noncompliance.
    (4) When requested by the CFAO, identify all CAS-covered 
contracts and subcontracts.
    (h) For any noncompliant practice subject to paragraph (b)(4) of 
this clause, prepare the DCI proposal as follows:
    (1) Calculate the cost impact in accordance with paragraph (i) 
of this clause.
    (2) Show the increase or decrease in price and cost 
accumulations for each affected CAS-covered contract and subcontract 
unless the CFAO and Contractor agree to--
    (i) Include only those affected CAS-covered contracts and 
subcontracts having--
    (A) Contract and subcontract values exceeding a specified amount 
when the noncompliance involves estimating costs; and
    (B) Incurred costs exceeding a specified amount when the 
noncompliance involves accumulating costs; and
    (ii) Estimate the total increase or decrease in price and cost 
accumulations for all affected CAS-covered contracts and 
subcontracts using the results in paragraph (h)(2)(i) of this 
clause.
    (3) Use a format acceptable to the CFAO that, as a minimum, 
include the information in paragraph (g)(3) of this clause.
    (4) When requested by the CFAO, identify all CAS-covered 
contracts and subcontracts.
    (i) For GDM and DCI proposals that are subject to the 
requirements of paragraph (g) or (h) of this clause, calculate the 
cost impact as follows:
    (1) The cost impact calculation shall include all affected CAS-
covered contracts and subcontracts regardless of their status (i.e., 
open or closed) or the fiscal year in which the costs are incurred 
(i.e., whether or not the final indirect rates have been 
established).
    (2) For noncompliances that involve estimating costs, determine 
the increased or decreased cost to the Government for fixed-price 
contracts and subcontracts as follows:
    (i) When the negotiated contract or subcontract price exceeds 
what the negotiated price would have been had the Contractor used a 
compliant practice, the difference is increased cost to the 
Government.
    (ii) When the negotiated contract or subcontract price is less 
than what the negotiated price would have been had the Contractor 
used a compliant practice, the difference is decreased cost to the 
Government.
    (3) For noncompliances that involve accumulating costs, 
determine the increased or decreased cost to the Government for

[[Page 11761]]

flexibly-priced contracts and subcontracts as follows:
    (i) When the costs that were accumulated under the noncompliant 
practice exceed the costs that would have been accumulated using a 
compliant practice (from the time the noncompliant practice was 
first implemented until the date the noncompliant practice was 
replaced with a compliant practice), the difference is increased 
cost to the Government.
    (ii) When the costs that were accumulated under the noncompliant 
practice are less than the costs that would have been accumulated 
using a compliant practice (from the time the noncompliant practice 
was first implemented until the date the noncompliant practice was 
replaced with a compliant practice), the difference is decreased 
cost to the Government.
    (4) Calculate the total increase or decrease in contract and 
subcontracts incentives, fees, and profits associated with the 
increased or decreased cost to the Government in accordance with 48 
CFR 9903.306(c). The associated increase or decrease is based on the 
difference between the negotiated incentives, fees, and profits and 
the amounts that would have been negotiated had the Contractor used 
a compliant practice.
    (5) Calculate the increased cost to the Government in the 
aggregate.
    (j) If the Contractor does not submit the information required 
by paragraph (b) or (c) of this clause within the specified time, or 
any extension granted by the CFAO, the CFAO may take one or both of 
the following actions:
    (1) Withhold an amount not to exceed 10 percent of each 
subsequent amount payment to the Contractor's affected CAS-covered 
contracts, (up to the estimated general dollar magnitude of the cost 
impact), until such time as the Contractor provides the required 
information to the CFAO.
    (2) Issue a final decision in accordance with FAR 33.211 and 
unilaterally adjust the contract(s) by the estimated amount of the 
cost impact.
    (k) Agree to--
    (1) Contract modifications to reflect adjustments required in 
accordance with paragraph (a)(4)(ii) or (a)(5) of the clauses at FAR 
52.230-2 and 52.230-5; or with paragraph (a)(3)(i) or (a)(4) of the 
clause at FAR 52.230-3; and
    (2) Repay the Government for any aggregate increased cost paid 
to the Contractor.
    (l) For all subcontracts subject to the clauses at FAR 52.230-2, 
52.230-3, or 52.230-5--
    (1) So state in the body of the subcontract, in the letter of 
award, or in both (do not use self-deleting clauses);
    (2) Include the substance of this clause in all negotiated 
subcontracts; and
    (3) Within 30 days after award of the subcontract, submit the 
following information to the Contractor's CFAO:
    (i) Subcontractor's name and subcontract number.
    (ii) Dollar amount and date of award.
    (iii) Name of Contractor making the award.
    (m) Notify the CFAO in writing of any adjustments required to 
subcontracts under this contract and agree to an adjustment to this 
contract price or estimated cost and fee. The Contractor shall--
    (1) Provide this notice within 30 days after the Contractor 
receives the proposed subcontract adjustments; and
    (2) Include a proposal for adjusting the higher-tier subcontract 
or the contract appropriately.
    (n) For subcontracts containing the clause or substance of the 
clause at FAR 52.230-2, FAR 52.230-3, or FAR 52.230-5, require the 
subcontractor to comply with all Standards in effect on the date of 
award or of final agreement on price, as shown on the 
subcontractor's signed Certificate of Current Cost or Pricing Data, 
whichever is earlier.

(End of clause)


0
9. Add section 52.230-7 to read as follows:


52.230-7  Proposal Disclosure--Cost Accounting Practice Changes.

    As prescribed in 30.201-3(c), insert the following provision:

Proposal Disclosure--Cost Accounting Practice Changes (Apr 2005)

    The offeror shall check ``yes'' below if the contract award will 
result in a required or unilateral change in cost accounting 
practice, including unilateral changes requested to be desirable 
changes.

[ballot] Yes [ballot] No

    If the offeror checked ``Yes'' above, the offeror shall--
    (1) Prepare the price proposal in response to the solicitation 
using the changed practice for the period of performance for which 
the practice will be used; and
    (2) Submit a description of the changed cost accounting practice 
to the Contracting Officer and the Cognizant Federal Agency Official 
as pricing support for the proposal.

(End of provision)

[FR Doc. 05-4093 Filed 3-8-05; 8:45 am]
BILLING CODE 6820-EP-P